Which statement describes life cycle costing?
Answer and explanation
Correct answer: A. It tracks all costs of a product from design and development through to withdrawal and disposal
- Step 1: Life cycle costing accumulates costs over the whole life of a product.
- Step 2: This includes research and development, production, marketing, distribution and decommissioning.
Answer
It tracks all costs of a product from design and development through to withdrawal and disposal.
Why not the others: This ignores pre-production and post-sale costs, which life cycle costing includes. Life cycle costing takes the entire lifetime as the unit of analysis. That is the inventory valuation rule under IAS 2, which is not life cycle costing.
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