1. CAMELLA INSTITUTE OF TECHNOLOGY
TOPIC: LIFE CYCLE COSTING
3rd - year B.Tech(MECHANICAL ENGINEERING)
Name: Chandan kumar Jha
Roll No.-23000720071
7th semester
2. Contains
• Objective
• Introduction
• Life cycle costing
• Life-cycle costing concept
• Aspects of Life Cycle Costing
• Stages of Product Life Cycle
• Conclusion
• Acknowledge
3. Objective:
• Assists management to smartly manage total cost throughout product’s life
cycle.
• To identify areas in which cost reduction efforts are likely to more effective.
• To estimate the cost impact of various designs and support options.
4. Introduction
• At the start of any project, it is important to understand the costs involved.
• Traditional methods simply look at start up costs, cash flow and profit or
loss.
• Focused primarily on the manufacturing stage of product life cycle.
• Pre & post – manufacturing are treated as expenses costs.
5. LIFE CYCLE COSTING
• Definition:
• Life cycle costing is defined as the total cost throughout its life including planning,
design, acquisition & support costs & any other costs directly attributable to owning /
using the asset.
• Category of LCC Capital assets:
• Initial costs
• Operating costs
• Disposal costs
6. LIFE CYCLE COSTING
• Simple Formula:
• LCC= Capital + lifetime operating costs + lifetime maintenance
costs + disposal costs – residual value
7. Numerical example of lcc
• A company is planning a new product. Market research information suggests that the product
should sell 10,000 units at RM21/unit. The company seeks to make a markup of 40% product costs.
It is estimated that the lifetime costs of the product will be as follows :
a. Design and development costs RM50,000
b. .Manufacturing costs RM10/unit
c. End of life costs RM20,000
Required : What is the original lifecycle costs per unit?
Ans- LCC/unit = RM50,000 + ( 10,000 units x RM10 ) + RM20,000 / 10,000 units
= RM 17
8. Life-cycle costing concept
• Help management to understand the cost consequence of developing and
making a product and to identify areas which cost reduction efforts are likely
to be most effective.
• The process of LLC fundamentally involves :
Assessing cost arising from an assets over its life cycle
Evaluating alternatives that have impact on this cost ownership
9. Aspects of Life Cycle Costing
• There are 2 important point :
• The focus on the product cost.
• The inclusion of all upstream and downstream cost
• A Product Life Cycle (PLC) may be classified into 3 broad stages, namely :
• Planning and Design.
• Manufacturing and Sales.
• Service and abandonment.
11. Stages of Product Life Cycle
• Planning and design stage
Manufacturing stage
• Research and development cost, costs of product design, etc .
Witnesses both growth and maturity in sales. All the manufacturing, marketing, selling and distribution costs
are incurred at this stage.
• Service and abandonment stage
This stage signified by a decline in a sales volume • The demand for the product declines at this stage. The
producers may be required to provide after sales service for the already sold products • Costs that are incurred
in this stage include all costs relating to after sales service including provision of spares and expert services
and costs of abandonment and disposal of the product
13. Advantages of LCC
• Improve forecasting
The application of LCC technique allows the full cost associated with a procurement to
be estimated more accurately.
• Improved awareness
Provide management with an improved awareness of the factors that drive cost and the
resources required by the purchase.
• Performance trade-off against cost
LCC technique not only focus on cost but also consider other factors like quality of the
goods and level of service to be provided.
15. Implications of Life-Cycle Costing
Pricing •Knowing life cycles ensures appropriate price of the products.
Performance Management •Highlights the cost consequences of developing and making a
product.
•To identify areas in which cost reduction efforts are likely to be most
effective.
Decision Making •Provides premises for decision making regarding product
introduction, product mix, discontinuation of products.
16. Conclusion
• The management can know whether the revenue earned by the product is
sufficient to cover the costs incurred during its life-cycle
• There are opportunities for cost reduction and minimization (and thereby
scope for profit maximization)
• We will find out about the costs involved at different stages of the life-cycle
and the implications of life-cycle costing on pricing, performance
management and decision making.
17. Acknowledge
• I would like to thanks Hod and fecality members of my department.
• I am also like to thanks my friends
• Finally, I acknowledge the most important role of Google, YouTube video
of NPTEL without which it was impossible for me to complete my work.
