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PRESENTATION ON:
LIFE CYCLE COSTING

Submitted by- Deepak Dhingra

Product Life Cycle:

The innovation of a new product and its degeneration into a common product
is termed as the Life Cycle of a Product. Phases in a Product Life Cycle are as follows: 1. 2. 3. 4. Introduction Growth Maturity Decline

Submitted by- Deepak Dhingra

Submitted by- Deepak Dhingra

Submitted by- Deepak Dhingra

Phases of Product Life Cycle

1. Introduction Phase: Research & engineering skills leads to product development.
Promotional costs will be high, sales revenue low and profits probably negative. Sales of new products usually rise slowly at first.

This stage may last from a few months to a year for consumer goods and generally
longer for industrial products.

2. Growth Phase:
In the growth phase product penetration into the market and sales will increase because of cumulative effects of introductory promotion, distribution. Customer Satisfaction must be ensured at this stage. Profit margins peak during this stage.
Submitted by- Deepak Dhingra

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3. Maturity Phase: This stage begins after sales cease to rise exponentially.
This is usually the longest stage in the cycle, and most existing products are in this stage.

In this phase there will be stable price and profits and the emergence of competitors.

4. Decline Phase:
This stage caused by the following factors: Technical advances leading to product substitution. Fashion & changing tastes. Cost control is especially important in the period of decline.

Submitted by- Deepak Dhingra

Characteristics of Product Life Cycle

The products have finite lives and pass through the phases of cycle at

varying speeds. Product cost, revenue and profits patterns tend to follow predictable courses through the product life cycle. Profit per unit varies as products move through their life-cycles. Each stage of the product life cycle poses different threats and opportunities that give rise to different strategic actions.

Submitted by- Deepak Dhingra

Product Life Cycle & Cost Control

PLC is the pattern of expenditure, sales level, revenue and profit over the period
from new idea generation to the deletion of a product from the product range. PLC Costing is a way to enhance the control of manufacturing costs. PLC Costing approach is used to provide a long term picture of product line profitability and feedback on the effectiveness of life cycle planning. The major benefit of adopting PLC Costing is that it provides an overall framework for considering total incremental costs over the entire life span of a product, which in turn facilitates the analysis of parts of the whole where cost effectiveness might be improved.

Submitted by- Deepak Dhingra

Project Life Cycle Costing

Project life cycle costing is a technique which takes account of the total cost of
owing a physical asset, or making a product, during its economic life. It includes the costs associated with acquiring, using, caring for & disposing of physical assets, including the feasibility study, research, design, development, production, maintenance, replacement and disposal, as well as support, training & operating costs generated by the acquisition, use, maintenance & replacement of permanent physical assets.

Submitted by- Deepak Dhingra

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Project Life Cycle Costs

Acquisition costs.
Transportation & handling costs of capital equipment. Maintenance costs of capital equipment. Operating costs. Training costs. Inventory costs. Technical data costs.

Retirement & disposal costs at the end of life.

Submitted by- Deepak Dhingra

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Categories of Project Life-Cycle Costs

1. Initial Costs
If asset is constructed in-house Research & Development Design Specifications Manufacturing Quality control & testing If asset purchased from supplier Acquisition Installation Commissioning Obtaining spares

Recruitment & training of operations Recruitment & training of operations staff & maintenance engineers staff & maintenance engineers

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2. Operating Costs
(a) Cost of low production during downtime (b) Cost of poor performance

(c) Cost of low utilization

3. Disposal Costs

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Submitted by- Deepak Dhingra