FRM's managers have recently introduced new, more efficient equipment for feeding chickens. Under which of the following assumptions would life cycle costing be best applied?
A) The product is being sold at a loss
B) The product is being sold at a small profit
C) The product is being sold at a loss, but expected to add to profits over time
D) The product is being sold at a small profit, which is expected to decline over time

Question

Quizplus · Accepted Answer

Life cycle costing is best applied when the initial investment is high but expected to generate savings or profits over the product's lifetime. In this scenario, the new equipment may have higher initial costs, but it is expected to add to profits over time, even though the product is being sold at a loss initially. Therefore, life cycle costing may be useful in evaluating the long-term profitability of the investment.

FRM's Managers Have Recently Introduced New, More Efficient Equipment for Feeding