presentation on life cycle costing
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PRESENTATION ON:
LIFE CYCLE COSTING
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Submitted by- Deepak Dhingra
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Product Life Cycle:
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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. Introduction
2. Growth
3. Maturity
4. Decline
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Phases of Product Life Cycle
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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.
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Continue
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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.
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Characteristics of Product Life Cycle
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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.
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Product Life Cycle & Cost Control
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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.
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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.
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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.
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Categories of Project Life-Cycle Costs
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1. Initial Costs
If asset is constructed in-house If asset purchased from supplier
Research & Development Acquisition
Design Specifications Installation
Manufacturing Commissioning
Quality control & testing
Obtaining spares Recruitment & training of operations
staff & maintenance engineers
Recruitment & training of operations
staff & maintenance engineers
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Continue2. 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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