ACCA Applied Skills · Performance Management · Life-cycle costing
Zentra Ltd is costing a new product over its whole life. Research and development will cost $120,000 and design $80,000. Manufacturing is expected to cost $450,000, distribution $70,000 and customer service $60,000. Decommissioning at the end of life will cost $20,000. What is the total life cycle cost of the product?
The total life cycle cost is $800,000. Life cycle costing adds every cost from research and design through manufacturing, distribution and service to decommissioning. Leaving out any stage, such as R&D or end-of-life costs, understates the true cost of the product over its whole life.
- A$800,000Correct
- B$780,000
- C$680,000
- D$600,000
Explanation
Life cycle costing includes all costs from research through to end-of-life. $120,000 + $80,000 + $450,000 + $70,000 + $60,000 + $20,000 = $800,000. $780,000 wrongly omits decommissioning, $680,000 omits R&D, and $600,000 omits both R&D and design.
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