Question

The total cost of ownership (TCO) is an estimate of the cost of an item that includes all the costs related to the procurement and use of an item, but it does not include any of the costs related to disposing of the item after it is no longer useful.True / False.

Answer 1

Answer:

False.

Explanation:

The total cost of ownership can be defined as the acquisition cost of an asset and the cost of it's operation. It takes into account the total value of the asset. Before making a decision on the asset one wants to purchase, the total cost of ownership should be assessed. Most buyers make the mistake of only considering the purchase cost of an item without considering other operational and maintenance cost over the items useful life. For example, one might decide to pick a cheap alternative based on it's low purchase cost and later realize very hefty operation and maintenance cost. It is therefor prudent for buyers to consider not only the short-term cost which is the price but also the long-term cost that will be incurred over the item's useful life.

Most companies in business that want to purchase an equipment usually consider the total cost of ownership to determine the best alternative in terms of long-term value. By doing a total cost of ownership analysis, the company tends to have a holistic view of all the direct and indirect costs.