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ACCA Applied Knowledge · Management Accounting · Alternative cost accounting principles

Which statement best describes life cycle costing?

Life cycle costing accumulates the costs and revenues of a product over its whole life, from design and development through to final abandonment or disposal, rather than only the costs during the production phase.

  1. AIt tracks and accumulates costs and revenues attributable to a product from design to final abandonmentCorrect
  2. BIt records only the production costs incurred while the product is in the maturity stage
  3. CIt allocates all overheads to products using a single plant-wide absorption rate
  4. DIt sets the selling price by adding a fixed mark-up to the total production cost

Explanation

Life cycle costing considers the whole life of a product, including pre-production costs such as research and design, and end-of-life costs such as decommissioning. Restricting it to production-stage costs ignores the main benefit of the technique, which is to see total costs across the life.

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