Life Cycle Costing (3)

Question 1

Advantages of life cycle costing (profitability)

Answer 1

Helps management to assess profitability over the full life of a product

Question 2

Advantages of life cycle costing (develop products)

Answer 2

Can be very useful for organisations to develop products with a relatively short life, where it may be possible to estimate sales volumes and prices with reasonable accuracy

Question 3

Advantages of life cycle costing (earlier)

Answer 3

The life cycle concept results in earlier actions to generate more revenue or to lower costs than otherwise might be considered

Question 4

Advantages of life cycle costing (better decisions)

Answer 4

Better decisions should follow from a more accurate and realistic assessment of revenues and costs

Question 5

Advantages of life cycle costing (longer-term thinking)

Answer 5

It encourages longer-term thinking and forward-planning and may provide more useful information that traditional reports of historical costs and profits for each accounting period