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CMA Final · Strategic Cost Management · Product Life Cycle Costing

Which treatment is consistent with life cycle costing when a firm compares two machines for a product whose total life is five years?

Life cycle costing requires including all costs from acquisition through operation, maintenance and disposal. Looking only at purchase price or manufacturing stage would ignore large later costs, so the machine with the lowest total cost over its life is preferred.

  1. AInclude costs from acquisition through operation, maintenance and disposal, not just the purchase priceCorrect
  2. BCompare only the purchase prices since the future costs are uncertain
  3. CIgnore disposal costs because they arise after production ends
  4. DInclude only costs incurred in the manufacturing stage

Explanation

Life cycle costing captures all costs over the whole life, including operating, maintenance and disposal costs. Comparing only purchase price or manufacturing costs ignores significant costs that follow from the choice.

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