ACCA Performance Management (F5) Certification Practice Exam

What is a benefit of life cycle costing?

1. Reduces total costs in the short term

2. Focus on immediate profit gains

3. Management attention to all costs throughout the product's life

4. Only assessing costs at the production stage

The correct answer is: Management attention to all costs throughout the product's life

Life cycle costing is a comprehensive approach that takes into account all costs associated with a product over its entire life cycle, from design and production through to use and disposal. This perspective allows management to focus not just on initial or short-term costs, but on the total cost of ownership throughout the product's life. By considering factors such as maintenance, operational costs, and disposal costs, life cycle costing helps organizations make more informed decisions that can lead to better resource allocation and longer-term savings. It encourages managers to think strategically about how design choices can impact overall expenses and profitability over time. This contrasts with approaches that focus solely on short-term cost reductions or profits, which might neglect longer-term financial implications. It fosters a broader understanding of product costs, enabling organizations to identify areas for improvement and innovation that can enhance sustainability and efficiency throughout the product's lifecycle.