ITPEC FE Morning April 2019 Question 56
ITPEC FE Morning April 2019 — Question 56 of 80
Total Cost of Ownership (TCO) — calculating full ownership cost over a given period
TCO includes the initial purchase price plus all recurring costs over the ownership period.
Given:
- Purchase price: $120,500
- Period: 5 years
- Annual costs: Insurance ($2,030) + Maintenance ($1,000) + Repair ($700) + Registration ($270) = $4,000/year
Calculation:
- Total annual costs over 5 years: $4,000 × 5 = $20,000
- TCO = $120,500 + $20,000 = $140,500
Correct answer: c) 140,500
Why not others:
- a) 28,100 — does not correspond to any valid calculation
- b) 120,500 — only the purchase price, ignoring all recurring costs
- d) 622,500 — incorrectly multiplies the purchase price by 5 as well (120,500 × 5 + 20,000)
Key rule: TCO = one-time acquisition cost + (annual recurring costs × number of years). The purchase price is a one-time cost and must NOT be multiplied by the period.
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