223492
Description
Mind Map by Shahid Musthafa, updated more than 1 year ago
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Created by Shahid Musthafa
over 10 years ago
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LIFE CYCLE COSTING
- Tracks and accumulates
costs and revenues
- attributable to each
product over its
entire product
lifecycle.
- Hence, the total
profitability of any given
product can be
determined.
- Hence, the total
profitability of any given
product can be
determined.
- attributable to each
product over its
entire product
lifecycle.
- A products life cycle is
divided into different stages
or phases
- Design Phase
- Also called as
pre production
phase
- A high level of setup costs will be incurred
in this stage (preproduction costs),
including research and development
(R&D), product design and building of
production facilities.
- 90% of the products
costs are locked in at
this stage
- Management Accounting
systems should therefore be
developed that aid the planning
and control of product lifecycle
costs and monitor spending and
commitments at the early stages
of a product's life cycle.
- Management Accounting
systems should therefore be
developed that aid the planning
and control of product lifecycle
costs and monitor spending and
commitments at the early stages
of a product's life cycle.
- Launch & Production Phase
- Also called as market
development stage
- Success depends upon awareness and trial
of the product by consumers, so this stage
is likely to be accompanied by extensive
marketing and promotion costs.
- Material, labour, overheads,
machine set up, inventory, training,
production machine maintenance
and depreciation
- Growth or
Operation stage
- In this stage sales volume increases
dramatically, and unit costs fall as
fixed costs are recovered over greater
volumes
- Distribution,
advertising and
warranty claims
- Maturity Stage
- Decline Stage
- Environmental clean-up,
disposal and
decommissioning
- Marketing costs are
usually cut as the product
is phased out
- Production
economies may be
lost as volumes fall
- Alternatively additional development
costs may be incurred to refine the
model to extend the lifecycle (this is
typical with cars where ‘product
evolution’ is the norm rather than
‘product revolution’).
- Environmental clean-up,
disposal and
decommissioning
- profits will continue to increase as
the fixed costs are recovered and
the firm still benefit from the
economy of large scale production
- the competition
will get tight
- Decline Stage
- In this stage sales volume increases
dramatically, and unit costs fall as
fixed costs are recovered over greater
volumes
- Also called as market
development stage
- Also called as
pre production
phase
- DLp G M D
- Design Phase
- It recognises that for many
products there are significant
costs to be incurred in the early
stages of its life cycle.
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