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Meaning :-
Sum of all recurring and non-recurring cost over the full life span or a specified period of a good , service, structure, or system. In includes purchase price , installation cost, operating costs , maintenance and upgrade costs, and remaining (residual or salvage) value at the end of ownership or its useful life. Life-cycle costing is a method of costing that looks at a products entire value chain from a cost perspective. Other types of costing generally look only at the production process, whereas lifecycle costing tracks and evaluates costing from the research and development phase of a products life, through to the decline and eventual conclusion of a products life. This approach to costing makes sense for several reasons. First of all, most of a products costs are committed before the product is in the production phase. This means that the majority of control management can exert over production and other costs is during the design phase of the products life-cycle The LCC can be easily understand with the help of product life cycle , product life cycle has 4 stages 1) 2) 3) 4) Introduction Growth Maturity Decline
1) Introduction in this stage the product is new and introduced in the market though it is new the expenses such as R&D, manufacturing, promotion expenses are incurred so first this cost is calculated . 2) Growth- in this stage the product is on the stage of growth is slowly capturing the market and expenses incurred on product growth are calculated 3) Maturity this is the stage where the product is reach at its top position and all the expenses slowly coming in the profit . 4) Decline thought technology is changing and with this change the taste and preference also changes the comp. need to R&D and make alteration according to the need and demand of the customer all the cost calculated here and the process keep on going ant never end .
Life-Cycle Costing Procedures In its standard form, life-cycle costing cannot be used for financial reporting and in and of itself is not consistent with generally accepted accounting principles (GAAP). However, life-cycle costing is perhaps the best form of costing from a planning standpoint, and is a great tool that can be used by product managers throughout the life-cycle of a product. n order to use life-cycle costing to its fullest, costs must be calculated from the point of the initial idea for the product, until the product is no longer made. These costs are then divided by the total number of expected units to be sold throughout the lifetime of the product to come to a total cost per unit. This process can help product managers to get a realistic view of the total cost of a product, so they can design and adjust accordingly. When Is Life-Cycle Costing Appropriate? Life-cycle costing is most appropriate when a product is in the design, or pre-design stages. This will allow management to gain the most benefit from the process, as opposed to attempting to use life-cycle costing after a product is already in the marketplace. n order to use life-cycle costing to its fullest, costs must be calculated from the point of the initial idea for the product, until the product is no longer made. These costs are then divided by the total number of expected units to be sold throughout the lifetime of the product to come to a total cost per unit. This process can help product managers to get a realistic view of the total cost of a product, so they can design and adjust accordingly.
WHY USE LCC? LCC helps change provincial perspectives for business issues with emphasis on enhancing economic competitiveness by working for the lowest long term cost of ownership which is not an easy answer to obtain. Consider these typical problems and conflicts observed in most companies: 1. Project Engineering wants to minimize capital costs as the only criteria, 2. Maintenance Engineering wants to minimize repair hours as the only criteria, 3. Production wants to maximize uptime hours as the only criteria, 4. Reliability Engineering wants to avoid failures as the only criteria, 5. Accounting wants to maximize project net present value as the only criteria, and 6. Shareholders want to increase stockholder wealth as the only criteria. Management is responsible for harmonizing these potential conflicts under the banner of operating for the lowest long term cost of ownership. LCC can be used as a management decision tool for harmonizing the never ending conflicts by focusing on facts, money, and time. Why should engineers be concerned about cost details for LCC? It is important to help engineers think like MBAs and act like engineers for profit making enterprises--Its all about the money! Economic calculations are well defined but the discount rate is important (US Government 2002). Accounting and finance organizations set internal discount rates (which often change) to make economic decisions easy for engineers. Discount factors reflect a host of relationships and considerations which include very low risk investment returns such as Government T-bills,
From the above diagram we can easily understand the life cycle of product and at each stage the expenses the comp. bears and at last the product is disposed of make some alteration and again the cycle is going on up to endless life. All the cost bear by the comp. from manufacturing to the disposal or reuse if we add all the cost then we find the life cycle cost.