CCE Life Cycle Costing & Total Cost of Ownership 2

Question 1

Total Cost of Ownership (TCO) differs from a simple purchase price analysis primarily because TCO:

Accepted Answer

Includes all direct and indirect costs associated with acquiring, operating, and retiring an asset

Answer

TCO captures both visible costs (purchase price, maintenance) and hidden costs (training, downtime, disposal) to reveal the true economic burden of ownership.

Question 2

In LCCA, a 'study period' is BEST described as:

Accepted Answer

The time span over which alternatives are compared, encompassing the planning horizon

Answer

The study period is selected by the analyst to match the decision-making horizon and must be identical for all alternatives being compared.

Question 3

When the real discount rate is used in LCCA (as opposed to the nominal rate), future cost estimates should be expressed in:

Accepted Answer

Current (constant) dollars, excluding general inflation

Answer

The real discount rate already strips out general inflation, so cost estimates in constant (today's) dollars are appropriate — using nominal dollars with a real rate would double-count inflation.

Question 4

Sensitivity analysis in Life Cycle Cost studies is performed to:

Accepted Answer

Identify which input variables most significantly affect the LCC outcome

Answer

Sensitivity analysis varies key assumptions (discount rate, useful life, energy prices) to determine which variables drive LCC decisions most, revealing where estimates must be most accurate.

Question 5

Which of the following is an example of an indirect cost that should be included in a Total Cost of Ownership analysis for manufacturing equipment?

Accepted Answer

Lost production revenue during unplanned downtime

Answer

Lost production during downtime is a hidden indirect cost of ownership that TCO analysis captures but a simple purchase-price comparison would miss.

CCE - Certified Cost Engineer Practice Test

CCE - Certified Cost Engineer Practice Test

CCE Life Cycle Costing & Total Cost of Ownership 2