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
12. 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.
13. 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.
