lice cycle costing and kaizen
1.0 Life cycle costing (LCC)
1.1 Definition
Life cycle costing is a cost management approach which includes all costs and ensures that all those costs are managed over the life cycle of the product. Product life cycle begins from conception of the product until its abandonment which can be referred as ‘from cradle to grave‘. Product life cycle has four stages:
1) Product planning and initial concept design
It involves process of identifying any underlying conditions, assumption, limitations and constraints such as minimum asset performance, maximum capital costs that might restrict the range of acceptable options to be evaluated. It is a valuable reference for better decision whether the plan should be carried on.
This includes the research and development cost market research costs.
2) Product design and development
Starting from preparation of development contract until equipment is ready to be introduced to the business. It is also a stage where the factory trials take place.
Cost of product design, prototyping, and market testing costs.
3) Production
All the manufacturing costs related to producing the products such as direct material, labor, overhead and administrative costs will be incurred.
4) Distribution and customer (or logistical) support
This stage is where product are sent to customers and ready to be used.
All marketing, selling and distribution costs are incurred at this stage.
As for logical support cost, it involves delivery and transportation costs, warehousing costs, dismantling cost and costs for abandonment of the project and some equipment might need to be disposed of or recycled. All expenditure for resources that are likely to arise must be addressed. Future costs are also taken into consideration and will be discounted to the present value. LCC includes all the upstream costs and downstream costs. Upstream costs involved in producing a good include research and development costs, such as salaries paid to research engineers.
1.1 Definition
Life cycle costing is a cost management approach which includes all costs and ensures that all those costs are managed over the life cycle of the product. Product life cycle begins from conception of the product until its abandonment which can be referred as ‘from cradle to grave‘. Product life cycle has four stages:
1) Product planning and initial concept design
It involves process of identifying any underlying conditions, assumption, limitations and constraints such as minimum asset performance, maximum capital costs that might restrict the range of acceptable options to be evaluated. It is a valuable reference for better decision whether the plan should be carried on.
This includes the research and development cost market research costs.
2) Product design and development
Starting from preparation of development contract until equipment is ready to be introduced to the business. It is also a stage where the factory trials take place.
Cost of product design, prototyping, and market testing costs.
3) Production
All the manufacturing costs related to producing the products such as direct material, labor, overhead and administrative costs will be incurred.
4) Distribution and customer (or logistical) support
This stage is where product are sent to customers and ready to be used.
All marketing, selling and distribution costs are incurred at this stage.
As for logical support cost, it involves delivery and transportation costs, warehousing costs, dismantling cost and costs for abandonment of the project and some equipment might need to be disposed of or recycled. All expenditure for resources that are likely to arise must be addressed. Future costs are also taken into consideration and will be discounted to the present value. LCC includes all the upstream costs and downstream costs. Upstream costs involved in producing a good include research and development costs, such as salaries paid to research engineers.