The following statements relate to the justification of the use of life cycle costing: (i) Product life cycles are becoming increasingly short. This means that the initial costs are an increasingly important component in the product’s overall costs. (ii) Product costs are increasingly weighted to the start of a product’s life cycle, and to properly understand the profitability of a product these costs must be matched to the ultimate revenues. (iii) The high costs of (for example) research, design and marketing in the early stages in a product’s life cycle necessitate a high initial selling price. (iv) Traditional capital budgeting techniques do not attempt to minimise the costs or maximise the revenues over the product life cycle. Which of these statements are substantially true?
A、(i), (ii) and (iv)
B、(ii), and (iii) only
C、(i) and (iv) only
D、All of them
A、(i), (ii) and (iv)
B、(ii), and (iii) only
C、(i) and (iv) only
D、All of them
【参考答案及解析】
(i) This is true, justifying the time and effort of life cycle costing. (ii) As above. (iii) This is not true: life cycle costing is not about setting selling prices, it is about linking total revenues to total costs. Even if it were about setting a selling price, the early sales may well be at a loss since it is TOTAL revenues and costs that are considered. Furthermore, the pre-launch costs are sunk at launch and are therefore irrelevant when setting a selling price. (iv) This is true. The deliberate attempt to maximise profitability is the key to life cycle costing.
(i) This is true, justifying the time and effort of life cycle costing. (ii) As above. (iii) This is not true: life cycle costing is not about setting selling prices, it is about linking total revenues to total costs. Even if it were about setting a selling price, the early sales may well be at a loss since it is TOTAL revenues and costs that are considered. Furthermore, the pre-launch costs are sunk at launch and are therefore irrelevant when setting a selling price. (iv) This is true. The deliberate attempt to maximise profitability is the key to life cycle costing.