CVS CVS Cost Analysis and Life Cycle Costing Questions and Answers 5

Question 1

Two alternatives have unequal service lives: Alternative X lasts 15 years and Alternative Y lasts 20 years. Which method allows a fair LCC comparison without extending the study period?

Accepted Answer

Convert each alternative's costs to an equivalent uniform annual cost (EUAC)

Answer

Annualizing each alternative's total present value cost over its own life yields comparable equivalent uniform annual costs despite unequal lives.

Question 2

A value study on a hospital finds that a proposed cheaper flooring material would double annual cleaning labor. The best justification for rejecting it under value methodology is that:

Accepted Answer

The increase in discounted operating costs exceeds the initial cost savings over the study period

Answer

Value decisions rest on total life cycle cost, so higher present-value operating costs can outweigh a lower first cost.

Question 3

What is the primary purpose of a sensitivity analysis in a life cycle cost study?

Accepted Answer

To test whether the ranking of alternatives changes when uncertain inputs like discount rate or energy prices vary

Answer

Sensitivity analysis varies uncertain assumptions to determine whether the preferred alternative remains robust across plausible input ranges.

Question 4

In a value study, 'cost worth' or the worth of a function is best defined as:

Accepted Answer

The lowest cost to reliably perform the required function

Answer

Worth is the least cost to perform a function reliably, and comparing it to actual cost exposes value improvement opportunities.

Question 5

A discount rate of 7% is used in an LCC study. A one-time replacement cost of $50,000 occurs in year 10. Which factor converts this to present value?

Accepted Answer

The single present worth factor, 1/(1.07)^10

Answer

A single future amount is discounted using the single present worth factor, 1 divided by (1+i) raised to the year of occurrence.

CVS - Certified Value Specialist Practice Test

CVS - Certified Value Specialist Practice Test

CVS CVS Cost Analysis and Life Cycle Costing Questions and Answers 5