Certified Professional Public Buyer (CPPB) Practice Test

What does the term "life cycle cost" refer to?

1. Initial purchase price

2. Total cost of ownership over the asset's lifespan

3. Annual maintenance costs

4. Market value at the end of its life

The correct answer is: Total cost of ownership over the asset's lifespan

The term "life cycle cost" refers to the total cost of ownership over the asset's lifespan, making it comprehensive and important for informed decision-making in procurement. It encompasses not only the initial purchase price but also additional costs that may arise throughout the asset's life, such as operational, maintenance, and disposal expenses. Evaluating life cycle costs allows organizations to assess the financial impact of their purchasing decisions over time, rather than focusing solely on the upfront investment. This holistic approach helps organizations make more sustainable and financially sound choices, ultimately leading to improved budget management and resource allocation. Considering the other options, the initial purchase price only reflects the immediate expenditure incurred at the time of acquisition, which overlooks ongoing and eventual costs. Annual maintenance costs represent a part of the total life cycle cost but do not account for all other financial aspects involved. Lastly, the market value at the end of its life does not provide a complete picture of the total expenses incurred during the asset's lifespan.