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ACCA Applied Skills · Performance Management · Life-cycle costing

A manager argues that a product's costs should be controlled mainly by monitoring production costs once manufacturing starts. Which statement best challenges this view using life-cycle costing?

Life-cycle costing shows that most costs are committed by design decisions before production begins, so cost reduction is most effective at the design stage. Controlling only production costs comes too late to change costs that have already been locked in.

  1. AProduction costs cannot be measured accurately once manufacturing starts
  2. BMost costs are already committed by design decisions, so cost reduction effort is more effective before production beginsCorrect
  3. CMarketing costs are always larger than production costs
  4. DDisposal costs are irrelevant because they occur after sales end

Explanation

Life-cycle costing shows that design and development decisions lock in a large share of later costs, so the greatest scope for reduction is early. Monitoring production alone comes too late to change committed costs. The other statements are unsupported or incorrect.

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