Life Cycle Costing (1) Flashcards
What is life cycle costing?
The accumulation of costs over a product’s entire life
WHat does life cycle costing aim to do?
Cost a produce, service, customer, project over its entire life cycle with the aim of maximising the return over total life while minimising costs
What does product life cycle costing consider?
All costs incurred from design to abandonment of a new product and compares these to revenues that can be generated from selliing the product at different stages
Development stage on product life cycle?
Sales volume: None
Costs: Research and development
Introduction stage on product life cycle?
Sales volume: Very low levels
Costs: Very high fixed costs (e.g. non-current assets)
Growth stage on product life cycle?
Sales volume: Rapid increase
Costs: Increase in variable costs, some fixed costs increase (e.g. number of factories)
Maturity stage on product life cycle?
Sales volume: Stable, high volume
Costs: Primarily variable costs
Declining stage on product life cycle?
Sales volume: Falling demand
Costs: Primarily variable costs (now decreasing), some fixed costs (decommissioning costs)
Example of research and development costs?
Design cost
Cost of making a prototype
Tersting costs
Production process and equipment
Example of the cost of purchasing any technical data required?
Purchasing the right from another organisation to use a patent
Exmaple of training costs?
Including intiial operator training and skills updating
Example of production costs?
When product is eventually launched in the market
Example of distribution costs?
Includes transportation and handling costs
Example of marketing and advertising costs?
Customer service
Field maintenance
Brand promotion
Example of inventory costs?
Spare parts
Warehousing
