Mohd Shukri PM_F5 Notes (Life cycle costing)

Learning outcomes Example past exam questions Notes

Identify the costs involved at different

stages of the life cycle
Derive a life cycle cost or profit in Q1 - Section A – Sept 2016
manufacturing Q7 - Section A – Dec 2016

Identify the benefits of lifecycle costing Q26 - Section B – Sept 2016

1. LCC

- Traditional Costing – Cost & revenue assessed at the end of financial year
- Life cycle Costing – Cost & revenue assessed over the entire life cycle
- One cost per unit of whole life

- All cost to be incurred from design to abandonment

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Mohd Shukri PM_F5 Notes (Life cycle costing)

2. How to calculate LCC per unit

- Total cost over LC / Total units over LC

*Please ensure that you differentiate FC and VC

3. How to maximise return over LC?

- Cost reduction in design stage

- Reduce time to market
- Lower breakeven – pricing strategy (skimming @ introduction)
-Extend the length of LC (different market, different launch date)

3. Advantages LCC?

1. Shorter product LC – suitable for modern business

2. Better decision making
- Promotes maximisation of return
- Considers all costs, leading cost reduction
- Consider external factors too