ExpertEasy2 marksMultiple Choice
ACCA · Question 6 · Specialist cost and management accounting techniques
Section A
PharmaLife is developing a new specialized medication. The company has noted that 80% of the product's total life-cycle costs are committed before the product even reaches the manufacturing stage.
During which phase of the product life-cycle are these costs primarily committed?
Section A
PharmaLife is developing a new specialized medication. The company has noted that 80% of the product's total life-cycle costs are committed before the product even reaches the manufacturing stage.
During which phase of the product life-cycle are these costs primarily committed?
Answer options:
A.
Introduction phase
B.
Design and development phase
C.
Growth phase
D.
Maturity phase
How to approach this question
Understand the difference between costs 'incurred' and costs 'committed'. Costs are committed when decisions are made that dictate future spending.
Full Answer
B.Design and development phase✓ Correct
In life-cycle costing, a key concept is that a vast majority (often 80-90%) of a product's costs are 'committed' or 'locked in' during the design and development phase. Decisions made here regarding materials, components, and manufacturing processes dictate the costs that will be incurred later during production.
Common mistakes
Confusing costs 'committed' with costs 'incurred'. Most costs are incurred during production, but committed during design.
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