Test: Life Costing - UGC NET MCQ

Statement 1 is correct as the Life Cost Analysis is indeed a tool used to control and manage the ongoing costs of an asset based on the LCC Model developed during the Life Cost Planning phase. However, Statement 2 is incorrect because the targets set for operating costs in the Life Cost Analysis may change with time as more accurate data is obtained. Therefore, the correct answer is Option A: 1 Only.

The stage in the product life cycle where proper drawings and process schedules are defined is the Design stage. This phase is crucial as it lays out detailed specifications regarding the product's required life, maintenance costs, manufacturing details, performance expectations, and other essential factors. Proper design is fundamental for ensuring that the product meets customer requirements and functions effectively in the market.

Life Cycle Costing involves tracking costs and revenues on a product-by-product basis over several calendar periods. This method allows for a comprehensive evaluation of all costs associated with owning and using an asset from its inception to its disposal. It enables decision-making regarding acquisition, maintenance, refurbishment, or disposal based on a full understanding of cost implications.

- The Assertion is true as life cycle costing is indeed a multi-disciplinary activity.

- The Reason is true since analysts in life cycle costing should be familiar with unique cost elements and financial principles.

- However, the Reason does not directly explain why life cycle costing is a multi-disciplinary approach, hence Option B is the correct choice.

The primary purpose of product life cycle costing involves tracing the costs and revenues of a product over various calendar periods throughout its life cycle. This process enables businesses to understand the financial implications of a product from its inception to its eventual decommissioning, aiding in strategic decision-making and financial planning.

- Assertion is correct as product life cycle costing does provide an overall framework for considering total incremental costs over a product's entire lifespan.

- Reason is correct as better decisions are indeed expected to result from accurate assessments of revenues and costs within specific life cycle stages.

- Reason is not the correct explanation of the Assertion as while both statements are true, the connection between them is not strong enough to establish a direct cause-and-effect relationship.

Life Cycle Costing differs from traditional cost accounting systems in that traditional systems report cost object profitability on a calendar basis, such as monthly, quarterly, or annually. In contrast, Life Cycle Costing involves tracing costs and revenues of a cost object over multiple calendar periods, providing a more comprehensive view of costs over the lifespan of the asset or product.

Statement 1 is correct as the implementation of the Life Cost Analysis does involve continuous monitoring of an asset's performance to identify areas where cost savings can be made.

Statement 2, however, is incorrect. That it may be better to replace an expensive building component with a more efficient solution before the end of its useful life based on the feedback from Life Cost Analysis. Therefore, the correct answer is Option A: 1 Only.

• Assertion is correct. Developing a plan is indeed the starting point in the LCC analysis process.
• The Reason is also correct. The plan encompasses various elements essential for guiding the analysis effectively.
• However, the Reason does not directly explain why developing a plan is the initial stage in the LCC analysis process, hence Option B is the correct answer.

- Assertion is correct as product life cycle costing indeed focuses on long-term rewards.

- Reason is correct as product life cycle costing involves considering total incremental costs over the product's entire lifespan.

- Reason is the correct explanation of the Assertion as the consideration of total incremental costs over the product's lifespan leads to the promotion of long-term rewards.