CIPS Level 4 Whole Life Asset Management L4M7 · Free Practice Question Easy
Question 11
Which of the following should be considered in calculating Total Cost of Ownership?
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A
Classification of fixed cost and variable cost
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B
Gross profit margin
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C
Purchase price
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D
Break even point
Reveal correct answer
Correct answer: C
Explanation
The total cost of ownership (TCO) is the purchase price of an asset plus the costs of operation. Looking at the total cost of ownership is a way of assessing the long-term value of a purchase to a company or individual.
TCO can be calculated in several ways depending on the type of product or service concerned (software solutions, car fleets, etc.). What are the components of TCO? The Total Cost of Ownership is generally calculated as the sum of these 8 types of costs:
Purchase price: cost price and supplier margin;
Cost incurred: transport, packaging, customs duties, payment terms;
Cost of acquisition: procurement department operations;
Cost of ownership: stock management, depreciation cost;
Cost of maintenance: spare parts, servicing;
Cost of usage: use value, operation, services;
Cost of poor quality: deadline compliance, non-compliance processes;
Cost of disposal: recycling, resale, destruction.
Discussion
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