The document discusses product life cycle costing (PLCC). PLCC tracks and accumulates all costs from invention to abandonment of a product. It helps calculate total costs over the product's entire lifecycle. PLCC considers initial costs, operating and maintenance costs, and can identify areas for cost reduction. PLCC was developed in the 1960s and used by defense agencies to improve cost effectiveness. It provides a more accurate assessment of total revenues and costs than traditional accounting methods.

2. Product Life cycle cost is defined as the “total
cost throughout its life including planning,
designing, developing, operating and
maintaining & any other costs directly
attributable to owning/using the asset”.
Product Life cycle costing(PLCC) is a
system that tracks and accumulates all costs
and revenues attribute between to cost object
from its invention to its abandonment.

3. • By using LCC, total cost of the product can be
calculated over the total span of product life
cycle
• Category of LCC of Capital assets :
•Initial costs ( Design & development cost,
Investment on product, or cost of equipment,
Installation cost)
•Operation & Maintenance Cost (Labour
cost, Energy cost, Spare & maintenance cost,
Raw material cost)

4. • Product Life Cycle Cost (PLCC) concept become
popular in the 1960s.
• PLCC was used by the United States Defense
agency, as an instrument to improve the cost
effectiveness of equipment procurement.
• In 1996 international electro technical
commission published the standard ( IEC 60300),
how to carry out life cycle costing in an
organisation
• This standard was revised in July 2004

6. Introduction Growth Stage Maturity Decline
Sales Low Rapidly rising
sales
Peak sales Declining
sales
Costs High cost Average cost
per customer
Low cost per
customer
Low cost per
customer
profit Negative Rising profits Maximize
profit
Declining
profits
M. Objective Create product
awareness and
trial Offer a
basic product
Maximize
market share
market share Reduce
expenditure

7. • life cycle costing involves tracing of costs
and revenues of throughout its life cycle.
• costs for each individual product are
compared with total product revenue
• Using different strategic actions at different
stages.
• It help to finding new uses or users or by
increasing the consumption of the present
users.

8. • To 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.
• To evaluation of purchase options
• To help logical decision making.

9. • To help logical decision making process.(Better
decisions should follow from a more accurate and
realistic assessment of revenues and costs)
• To evaluate and compare alternative options.
• With help of PLLC organization can assess the
economic viability of projects or products.
• To evaluate operating and maintenance cost.
• Application of PLCC techniques provides
management with an improved awareness of the
factors that drive cost and the resources required

10. DEFINING THE
PROBLEM REQUIRING
LCC
SELECTION OF
ALTERNATIVE
DECIDING A MODEL
FOR COST
DIFFERENT
ALTERNATIVES AND
COST OF ACQUISITION
PREPARING A COST
BREAKUP STRUCTURE
PREPARE YEARLY
COST PROFILES
CALCULATE COST
ESTIMATES FOR COST
MODELS
Source: Management Accounting by Madhu V, Macmillan publication

12. Traditional Method PLCC Method
It reports cost and revenues on a calendar
basis ( monthly, quarterly and annually .
It involves tracing cost and revenues on a
product or services over several calendar
period, over its lifespan
Takes into consideration only the costs
concerning production in product costing.
Takes into consideration all costs
(including period expenses) that can be
related to the product in product costing.
Attaches importance to the control of the
costs only in the production phase.
Attaches importance to cost management
from the development phase onward.
Is based on periodical reporting. Is based on product life cycle reporting.
total profitability of a product over its
entire life becomes difficult to determine.
It enables a product’s true profitability to
be determined at the end of the economic
life

13. • LCC is a tool which helps makes logical business
decision
• Using LCC company can:
• Evaluate and compare among different alternatives
• Assess economic viability of project
• Allows company to take earlier action to generate
revenue or to generate revenue or to lower costs than
otherwise might be considered
• LCC helps manager to understand acquisition cost Vs
operating and support costs

14. Period production
(units)
Fixed cost
per annum
(Rs.)
Variable
cost @ Rs .
2 (Rs.)
Total cost
(Rs.)
Cost per
unit (Rs)
1 10000 50000 20000 70000 7.00
2 20000 50000 40000 90000 4.50
3 100000 50000 200000 250000 2.50
4 30000 50000 60000 110000 3.67
5 5000 50000 10000 60000 12.00
165000 250000 330000 580000 3.52
Source: Cost Accounting T&P by Banerjee B, PHI learning Private limited

15. Period production
(units)
Fixed cost
per annum
(Rs.)
Variable
cost (Rs.)
Total cost
(Rs.)
Cost per
unit (Rs)
1 10000 50000 21000 (2.1) 71000 7.1
2 20000 50000 38000 (1.9) 88000 4.4
3 100000 50000 150000
(1.5)
200000 2.00
4 30000 50000 52000
(1.73)
102000 3.4
5 5000 50000 14000 (2.8) 64000 12.8
165000 250000 275000 525000 3.18
Hedge limited (3.18)
Source: Cost Accounting T&P by Banerjee B, PHI learning Private limited

16. Hedge limited ( LCC)
particular cost
Variable cost 275000
Fixed cost 250000
Total cost during product life 525000
total production 165000 units
Average cost per unit 3.18
Sales (5 per units) 825000
Profit( s-tc) 300000
Source: Cost Accounting T&P by Banerjee B, PHI learning Private limited

17. Tarpo limited (traditional costing)
Particular Cost
Variable cost 350000
Fixed cost 250000
Total cost during product life 650000
total production 165000 units
Average cost per unit 3.93
Sales (5 per units) 825000
Profit(s-tc) 225000

18. Advantages of life cycle costing
• Evaluating of competing purchase option
• Improved awareness of cost drivers and total
cost
• Improved forecasting
• Performance trade off against cost
Disadvantages of LCC
• Costly
• Time consuming process