Product Life Cycle Costing-Its Importance,Characteristics,Benefits and Stages

Product life cycle costing has grown in importance as this methodology/approach is able to provide a long term picture of product life in terms of:

• profitability;
• feedback on the effectiveness of life cycle planning and
• cost data to clarify the economic impact of alternatives chosen in the design,engineering phase,etc.

As such,many cost accountants consider it as a way to enhance control of the manufacturing costs at each stage of a product life’s cycle.

Life cycle costing enable costs to be more visible it ensure costs for each individual product can be reportd and compared with produc revenues generated in later periods.

The main characteristics of product life cycle costing comprises:

• tracing of costs and revenues of each product over the several calendar periods throughout their entire life cycle
• traces research and design and development costs and total magnitude of these costs for each individual product and compared with product revenue
• report generation for costs and revenues.

The following are some of the benefits of using product life cycle costing:

• results in earlier actions to generate revenue or to lower cost than otherwise might be considered
• better decision should follow from a more accurate and realistc assessment of revenues and costs,at least within a particura life cycle stage
• promote long-term rewards in contrast to short-term profitability rewarding
• provides an overall framewor for considering total incremental costs over the life span of a product.

The stages involved in product life cycle are:

• market research-identifies the products which the customers want,how much they are prepared to pay for it and how much quantity they intend buy
• specification-provides detais such as required life,maximum permissible maintenance costs,manufacturing costs units required,delivery date,expected performance of the product
• design-proper drawing and process schedules are defined
• prototype manufacture-prototype may be used to develop the products and eventuall to demonstrate that it meets the requirements of the specifications
• development-testing and changing to meet the requirements after the initial run as a product when first made rarely meets the specifications
• toolings-tooing up for production means building a productionine,building expensive jigs,buying the necessary tool and equipments
• manufacture-involves the purchase of raw material and components,use of labor to make and assemble the product
• selling-stimulating and creating demand for the product when the product is available for sale
• distribution-the product should be distributed to the sales outlets and to the customers
• product support-the manufacturer or supplier should ensure that spare and expert servicing facilities are available for the entire life of the product
• decommissioning-when a manufacturing product comes to an end,the plant used o build the product must be sold or scrapped

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