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CMA Final · Strategic Cost Management · Product Life Cycle Costing

Which of the following best describes the typical committed-cost pattern in product life cycle costing for a manufactured product?

Most life cycle cost is committed at design and development, although little cash is spent then. Decisions on specifications, materials and processes fix later production, marketing and service costs. So cost management effort is most effective in the early stages, before costs become locked in.

  1. AMost of the life cycle cost is committed during the design and development stage, though little of it is actually spent thenCorrect
  2. BMost of the life cycle cost is both committed and spent during the manufacturing stage
  3. CMost of the life cycle cost is committed during the decline stage
  4. DCommitted cost rises evenly in step with cash spent in each stage

Explanation

In life cycle costing, design and development decisions lock in a large share (often 70-90%) of total life cycle cost, even though cash outflow in that stage is small. The manufacturing-stage option confuses cash spending with commitment of cost.

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