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ACCA Applied Skills · Performance Management · Life-cycle costing

Which of the following is the main reason why life-cycle costing can improve cost control for a product?

Life-cycle costing improves cost control because it shows that most of a product's total costs are determined at the design and development stage. Management can therefore influence and reduce these costs early, before they are locked in, rather than trying to control them once production has started.

  1. AIt commits most costs to be incurred only after production starts, so they can be managed later
  2. BIt highlights that a large proportion of a product's total costs are determined at the design and development stage, so they can be influenced earlyCorrect
  3. CIt removes the need to prepare annual budgets because costs are tracked over the whole life
  4. DIt allocates all research and development costs to the first year of sales

Explanation

Most of a product's life-cycle costs are committed (locked in) during design and development, even though they are incurred later. Life-cycle costing makes these visible so management can reduce them early. The first option is wrong because it reverses this: costs are largely determined before production, not after.

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