Environmental regulations that require firms to “take back” and dispose of products have increased the importance of Blank______ costing. Multiple choice question. full differential target life-cycle cost-plus
The correct answer and explanation is:
Correct Answer: Life-cycle costing
Explanation (300 words):
Environmental regulations that require firms to “take back” and dispose of products at the end of their useful lives have significantly increased the importance of life-cycle costing.
Life-cycle costing (LCC) is a method that tracks and analyzes all the costs associated with a product over its entire life span—from initial design and development, through production and use, to final disposal or recycling. This approach gives businesses a comprehensive view of the total cost of ownership, allowing them to make more sustainable and cost-effective decisions.
With the rise in Extended Producer Responsibility (EPR) laws and similar environmental regulations globally, companies are now held accountable not just for producing and selling their goods, but also for managing their products after consumers are done using them. These laws aim to reduce waste and encourage manufacturers to design products that are easier to recycle, reuse, or safely dispose of.
Traditional costing methods, such as full costing or differential costing, typically focus only on a segment of the product’s cost—mainly production and direct expenses. However, these do not capture the full environmental and economic impact across the product’s entire life span. Life-cycle costing includes critical end-of-life costs, such as:
- Collection and transportation of used products
- Disassembly and recycling processes
- Waste management and hazardous materials handling
- Compliance with disposal regulations
By using life-cycle costing, companies can design products that minimize environmental harm and reduce total costs over time. It encourages sustainable product development by integrating eco-friendly materials, improving energy efficiency, and simplifying product disassembly.
In summary, environmental regulations that enforce product take-back and disposal responsibilities make life-cycle costing not just relevant but essential. It aligns environmental stewardship with financial strategy, helping firms comply with laws and maintain profitability in an increasingly eco-conscious marketplace.