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ACCA Applied Skills · Performance Management · Life-cycle costing

Which of the following is a limitation of life-cycle costing?

A key limitation of life-cycle costing is that it needs forecasts of costs and revenues over the whole product life, which can be very uncertain and so make the resulting figures unreliable, particularly for new products or those with long lives.

  1. AIt requires forecasts of costs and revenues over the whole life, which may be highly uncertainCorrect
  2. BIt ignores costs incurred after the product is sold to customers
  3. CIt can only be applied to products with a life of under one year
  4. DIt treats research and development costs as period costs only

Explanation

Life-cycle costing depends on estimates of future costs, volumes and prices over the entire life, and these can be unreliable, especially for new or long-lived products. The other options are false: it includes post-sale costs, suits long-lived products, and accumulates R&D into product cost.

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