Skip to content

ACCA Strategic Professional · Advanced Performance Management · Performance improvement models and techniques

A telecom handset maker finds that 80% of a product's life cycle costs are determined at the design stage, though only 20% have been incurred by then. Which action is most consistent with life cycle costing to improve profitability?

The company should invest more in design to reduce later costs. Since around 80% of life cycle costs are committed at design stage, additional upfront effort in design lowers production, service and disposal costs more cheaply than later corrections, improving whole-life profitability.

  1. ADelay cost analysis until the product reaches the maturity stage when data is reliable
  2. BInvest more in design to reduce later production, service and disposal costsCorrect
  3. CReduce design spending to lower early cash outflows
  4. DAllocate all costs to the period in which they are incurred and ignore the life cycle view

Explanation

Because most costs are locked in at design, extra design effort can reduce downstream costs such as production, warranty and disposal. Cutting design spend or delaying analysis misses the chance to influence committed costs.

Did you get it right without looking?

One question tells you little. A timed set on Performance improvement models and techniques shows your real accuracy, how long you take and where you lose marks.

Practise Performance improvement models and techniquesFree diagnostic mock

More Performance improvement models and techniques questions