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CMA Final · Strategic Cost Management · Asset Life Cycle Costing

A firm uses asset life cycle costing for a printing press. Which statement is correct about the treatment of the disposal phase?

Disposal is part of the asset's life cycle, so net disposal cost or salvage value is included in life cycle cost at present value. Salvage reduces the cost and dismantling expenses increase it. Ignoring the phase would understate the true cost of owning the asset.

  1. ADisposal costs are ignored because they occur after the useful life
  2. BNet disposal cost or salvage value is included in the life cycle cost, discounted to present valueCorrect
  3. CSalvage value is added to, not deducted from, the life cycle cost
  4. DDisposal costs are included only when salvage value is zero

Explanation

Life cycle costing covers the whole life, including disposal. Salvage proceeds reduce the cost and decommissioning costs increase it, both discounted to present value. Ignoring disposal understates total cost.

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