CMA Final · Strategic Cost Management · Asset Life Cycle Costing
Gupta Engineering estimates that, for an asset with a 6-year life, 70% of total life cycle cost is committed at the design stage although only 10% has been spent. Total life cycle cost is Rs 50,00,000. What amount of cost is already locked in (committed) but not yet spent at design stage?
Rs 30,00,000 is committed but not yet spent. Seventy percent of Rs 50,00,000 is locked in at design, which is Rs 35,00,000, and since Rs 5,00,000 has already been incurred, the balance of Rs 30,00,000 is a future cost already determined by design decisions.
- ARs 30,00,000Correct
- BRs 35,00,000
- CRs 5,00,000
- DRs 40,00,000
Explanation
Committed = 70% x 50,00,000 = 35,00,000. Spent = 10% x 50,00,000 = 5,00,000. Committed but not spent = 35,00,000 - 5,00,000 = 30,00,000. Rs 35,00,000 ignores the amount already spent.
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