CBAP · Question #546
The table illustrate the statement of cash flower for a courier company for the last fiscal year: Due to aggressive market competition the management of the company performed a strategy review and bas
The correct answer is B. Operating. The recurring day-to-day costs of running a live parcel tracking system - such as infrastructure, data transmission, and staffing - are classified as operating costs.
Question
The table illustrate the statement of cash flower for a courier company for the last fiscal year:
Due to aggressive market competition the management of the company performed a strategy review and based on their0-findings and the current market conditions, they came up with strategic and tactical changes in order to keep a competitive market position. In order to strength customer retention strategies through a new competitive advantage, the company is considering implementing a live parcel tracking system. The added value will be that the customers may determine the exact location on of the parcel whether it is in a warehouse, crossing the ocean through an overseas the exact location of th parcel whether it is in a warehouse, crossing the ocean through an overseas the ship, or travelling in a delivery truck at any time. The system tracks the location of the parcel by tracking the vehicle in which it is contained. However, for a group of old delivery trucks, it was noticed that the engine sound and vibration disturbed the tracking signal and caused of management would like to sell these vehicles and replace them with newer ones, the Chief Financial Officer (CFO) was strongly against that approach. The CFO argoad that instead of hanging tracking devices on the trucks body they can have the truck drivers manually send the truck send the truck location from a hand held mobile device every 20 minutes. The CFO's resistance to replacing the older vehicles represents which type of cost?
Exhibit
Options
- AMaintenance
- BOperating
- COpportunity
- DSunk
How the community answered
(29 responses)- A3% (1)
- B83% (24)
- C3% (1)
- D10% (3)
Why each option
The recurring day-to-day costs of running a live parcel tracking system - such as infrastructure, data transmission, and staffing - are classified as operating costs.
Maintenance costs are a narrower subset of operational spending focused on preserving existing assets, not the full category of recurring costs required to operate a newly deployed capability.
Operating costs are the ongoing expenditures a business incurs to sustain a product or service in production. Implementing and running a live parcel tracking system requires continuous spending on servers, network bandwidth, and support personnel, all of which fall under operating costs. These expenses flow through the operating activities section of a cash flow statement, which is the financial document referenced in the question.
Opportunity cost represents the foregone value of the next best alternative not chosen, and it does not appear as a line item on a cash flow statement.
Sunk costs are past expenditures that have already been incurred and cannot be recovered, which cannot apply to a system still under consideration for future implementation.
Concept tested: Cost classification - operating costs in cash flow analysis
Source: https://www.iiba.org/standards-and-resources/babok/
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