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Greetings.
Question 52 is regarding Life cycle costing.
I do not understand why option 2 is wrong and why option 4 is right. If you could elaborate on both of them nicely.
Option 2 is certainly tempting (and is typical of so many MCQ which have distractors which are nearly correct but not completely correct).
It is wrong because although obviously they want a selling price that will end up making a profit, the selling price is more determined by other factors (such as the price charges by competitors and the effect of the price on the level of demand).
Option 4 is correct because conventional costing only really looks at the operating costs (the production costs) and doesn’t take enough account of the initial development costs. Lifecycle costing takes both into account and therefore encourages management to manage both of the costs.
Option 2 – sir won’t the avg lifecycle cost help us to reduce the selling price by looking at the entire lifecycle cost than short term, thus indeed helping us to decide on the selling price (which would be lower when compared to taking help from short term / 1 yr range that would make the cost seem higher and thus force us to keep the selling price high as well). So that is why I thought lifecycle costing would help us to decide on the selling price for the product, making us able to reduce the price.
It certainly will help with an initial selling price, but other factors (as mentioned above) are more relevant in the longer term.
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