life cycle costing
INTRODUCTION Life cycle costing is one of the various techniques in strategic management. It is a procurement as well as production costing technique that considers all life cycle costs. Besides, it is also a tool to determine the most cost-effective option among different competing alternatives to do a project, when each is equally appropriate to be implemented on technical grounds.This report will discuss life cycle costing in the view of production costing technique. In manufacturing, the uses of this technique aims to estimate not only the production costs but also how much revenue a product will generate and what expenses will be incurred at each stage of the value chain during the product’s estimated life cycle. The results of a life cycle costing analysis can be used by various groups in the decision making process to compare various materials and design options to produce a product.
Life cycle costing is focusing on the product over the whole of its life cycle. It put emphasis on the accumulated cost over the product’s life. Life cycle of a product can be split into 5 distinct phases. Starting with development, then introduction followed by growth, maturity, and lastly decline. Life cycle costing take into account the total cost that incurred from right at the very start, the research and development phase through the end which is the removal of that product from the market. Life cycle will be different for different product. Not all products will have the same life cycle. Some product may have short life cycle, while others may have long life cycle. Key concepts that is crucial when discussing about life cycle costing is that it does not focus on accounting period or period of time but at the whole of the product’s life cycle. It uses estimation of what the costs are going to be across the entire life cycle. Thus it will enable the management to set a better price for their product.
Illustration 1
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4
Total
R & D
300
Life cycle costing is focusing on the product over the whole of its life cycle. It put emphasis on the accumulated cost over the product’s life. Life cycle of a product can be split into 5 distinct phases. Starting with development, then introduction followed by growth, maturity, and lastly decline. Life cycle costing take into account the total cost that incurred from right at the very start, the research and development phase through the end which is the removal of that product from the market. Life cycle will be different for different product. Not all products will have the same life cycle. Some product may have short life cycle, while others may have long life cycle. Key concepts that is crucial when discussing about life cycle costing is that it does not focus on accounting period or period of time but at the whole of the product’s life cycle. It uses estimation of what the costs are going to be across the entire life cycle. Thus it will enable the management to set a better price for their product.
Illustration 1
1
2
3
4
Total
R & D
300