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ACCA Applied Skills · Performance Management · Life-cycle costing

A manager argues that spending an extra $50,000 on design will reduce the product's lifetime costs. Which feature of life-cycle costing best supports this argument?

Life-cycle costing recognises that most lifetime costs are committed at the design stage, even though spending occurs later. Extra design expenditure can therefore reduce production, service and disposal costs over the whole life, justifying the manager's argument.

  1. AMost of a product's lifetime costs are committed during the design stageCorrect
  2. BCosts are only recorded when the product is sold
  3. CDesign costs are always treated as period costs
  4. DCosts are measured only over one financial year

Explanation

A large share of lifetime costs (often around 70-80%) is locked in at design, even though little is yet spent. Extra design spending can therefore cut later production and service costs. Life-cycle costing looks across the whole life, not one year, so the other options are wrong.

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