Life Cycle Costing Finding

In caution accounting, at that place argon discordant existing regularitys applicable to use in practice. all(prenominal) of practitioners are familiar with Job say be, process belling and exercise based experimental conditionsing. The key idea is to apply the right constituteing manner in the right situation. liveness motorbike constituteing (LCC) offers anformer(a) superior to the user. It is usually found in manufacturing, construction, software companies and product development. As we know, con pumper and handler take to make determination on the speak to of encyclopedism and address of current use of many different pluss like equipment, motor vehicle, institute and other.As it seems, the key factor to influence the end of acquisition on summations is the sign capital cost. In addition, the unrealized cost such as ongoing operation and maintenance cost should be considered before the decision make is do. keep round of golf cost is a proces s to determine the sum of all the be related with an asset throughout its vitality which overwhelm acquisition, installation, operations, maintenance, renovation and disposal costs.For example, if the tutors want to taint the motor vehicle for the purpose of company. They are needed to consider the whole breeding rhythm method of birth carry be such as their maintenance, their peration, their sign acquisition, and other factor which gage entertain more information to decision maker to make the better decision. This discover sets out to terminus what LCC, why LCC, when LCC, how LCC use on the manufacturing industry. The aim is to show a clear run acrossing toward flavour rung costing in theory and practise.FINDINGS 1 tone bike cost smell cycle costing is estimates and accumulated costs over a products entire deportment cycle in order to determine whether the meshs earned during the manufacturing form exit cover the cost incurred during during the pre- (upstr eam) and post- (downstream) demonstrate. By understand on how to identifying the cost incurred during the different head of product deportment cycle, it might help the manager to manage the total costs incurred throughout its life cycle.In addition, life cycle costing is similarly helps managements deeply understanding the cost consequences of developing and fashioning a product and to identify area in which may cost reduction effective. The process of Live rack termsing involves l. Assessing costs arising from an asset over its life cycle. Asset life cycle consist of various phase which are planning, acquisition, managing, distri exception, and disposition. Though the asset life cycle, all the cost arising from each phase must(prenominal) be estimated at the in the line stage to facilitate in the cost reduction.The acquirer should consider all germane(predicate) cost because it is not only about the initial investment and acquisition cost, but all cost occurred over the anticipated life cycle of the assets. II. Evaluating pick that have an effect on the cost of ownership. The comparisons of asset substitute(a) whether it is at the concept or detailed design level should be evaluate in order to achieve better outcomes from the assets. Each alternative may have different pros and cons. Selecting unfriendly alternative may impinge on all the cost incurred during the period of ownership.Therefore, a thorough evaluation shall be made to avoid unwanted circumstances. For example, the mobile phone industry such as Nokia, Samsung, HTC and other is a fast moving product. career cycles are light, mobile phone manufacturers spent lots of money on RD and they have to recover these costs in a mulct period of time. This explains why newly released mobile phones are exchange at such high prices. 1. 2) Reason for use vivification Cycle cost l. Comparison of asset alternatives to achieve better outcome from asset. Each asset lternatives should be evaluated so that it will assess the risk and benefit on all alternatives.A strategize development and implementation of plans and programs for the assets should be done to ensure that the assets running(a) objectives are achieved at optimum cost. II. Essential in determination of cost in the asset management process. It is important to identifying the cost in the asset management process whether the asset should be acquired, upgraded, maintained, or drum outd of. It will distribute a framework on how the asset will be acquired planning for the upgrade and maintenance and disposal process will be managed. Ill. As managers tools in asset.An effective asset manager tools will help in delivering company objective effectively and efficiently. In addition, the managers tools will be helps by governing bodyatic tools like economic appraisal, financial appraisal, value management, risk management and demand management in weighing up the costs and benefits, risks, objective, revenues and expendi tures. V. Enables the decision maker to balance the performance, reliability, maintain abilities and other goals against life cycle costs. In order to achieve the outcomes that reflect performance, reliability and ability, the proper planning, allocation of ogether. . 3) It behind be utilize in three stages breeding cycle costing should be applied when there are three stages l. The conceptual stage This is the stage when the initial proposal for investments is world considered. It is to estimate the coming(prenominal) cost and provision to be made over the life of the assets. For example, the different character reference and designs of machine to increase the sales production for the manufacturing industry. II. The acquisition stage. This is the stage where the forgetr for the assets is being assessed. It is to assist in the selection of the most cost-effective option. Ill. The attend stage.The stage of decision making on whether to maintain, improve or dispose of the asset s. It is to improve the cost effectiveness of the production as well as to improve the particular propositionation of future assets. For example, when automotive manufacturing products their car product, they are up(a) their quality of car. So that to ensure the guest still keeps loyalty to buy their car for future. 1. 4) Estimate Life Cycle cost The formula to suppose the life cycle costing Life Cycle cost = big(p) Cost + Life era Operating Cost + Life Time Maintenance Costs + Disposal Cost Residual Value yield Life Cycle PhasesFigure 1 illustrates the relationship between costs pull and costs incurred in the life cycle costing. It involves three stages of a products life cycle, the planning and design stage, the manufacturing stage and the go and distribution stage. Committed or locked-in costs are costs have not been incurred currently but that will be incurred in the future after the decision posterior has been made. Costs are incurred when a resource is sacrificed or used. A system of costing is the record cost only had been done when they have been incurred.Furthermore, the costs that have been committed are difficult to be alter. The pattern of cost commitment and incurrence will vary based on the industry and specific product introduced. During the planning and design stage, the cost management can be most effectively exercised compared to the manufacturing stage when the product design and processes have already identified and costs have been committed. At the post sales emolument and distribution phase, its focus more on cost containment than cost management. 1. 4. 2) Life Cycle Costing Model The information should be obtained before selecting a model.This is to ensure that the analysis can be made. Evaluation should be made in considering the applicability f all cost factors, empirical relationship, constants, elements and variables. Life cycle costing model should l. Represent the characteristic of the asset being analyzed. It includes t he intended use environment, maintenance concept, operating and maintenance support scenarios and any constraints and limitations. II. Comprehensive to include and highlight the relevant factors to the Life Cycle Costing asset. Ill.Easy to understand in order to permit timely decision making, future updates and V. Evaluate the specific Life Cycle Costing elements independently of other costing elements. 1. 4. ) Life Cycle Costing Breakdown into Asset Cost Some element need to be identified in Life Cycle Costing. This is because it requires the breakdown of the asset into its part of cost elements over time. The elements that should be considered are l. Significant amount of cost that generate components of activity. II. Time in the life cycle when conducting the activity. Ill.Resources cost categories that relevant such as material, labor, overhead, battery-acid and others. 1. 4. 4) Benefits of Life Cycle Costing The benefits the manager can gain from Life cycle costing are I. Plan ning and analysis of alternative solutions. It is to serve a framework to document and compare the alternatives to achieve significant cost benefits. Life cycle costing concept will give earlier actions to produce revenue or to lower costs. II. Selection of preferred alternatives. The decision maker can use the information for the selection process with the life cycle costing analysis.Better decision should follow from more realistic and complete assessment of cost and revenue. Ill. Securing funding. The comparison between the alternatives that have different money flow patterns over time is important. This is because there are corporate silver lows issues that need to be considered. Life cycle costing gos provide a basis for projecting cash requirements. V. Review. The life cycle costing can serve confirmation of the reliability of the life cycle costing model. Besides, the credibleness of future life cycle costing plans can be achieved. . 4. 5) Life Cycle Costing Process Life cycle costing involves cardinal stages which are Stage 1 Plan Life Cycle Costing The documentation of the plan needs to be done at the beginning to serve a framework of life cycle costing. This plan must be redirect examination to ensure the plan has been interpret correctly and address clearly. Stage 2 Select or Develop Life Cycle Costing Model All relevant categories of cost that will slide by in phases of life cycle should be identified. Select a method for estimating the associated cost and develop the estimates.Stage 3 Apply Life Cycle Costing Model Life cycle costing model need to be validated and obtain the model results from each relevant combinations and support scenarios define in the analysis plan. Stage 4 Document and Review Life Cycle Costing Results The documentation of the results should be done to ensure the users understand clearly the results and affects of the analysis along with the constraints and Stage 5 Prepare Life Cycle Costing Analysis Life cost anal ysis used to control and manage the ongoing costs of assets or part thereof.It involves review and development of the life cycle costing model asa cost control mechanism. Stage 6 Implement and Monitor Life Cycle Costing Analysis Life cycle costing should have a nonstop monitoring of the actual performance of an asset during its operations and maintenance and to provide feedback for future reference. 1. 4. 6) Application to industry For pharmaceutic products, the product life cycle is becoming shorter and shorter s new products keep being developed for the grocery demand purposes.It is not surprising that new medicines are being sold at very high prices. For example, drugs which are used to fght cancer in targeted therapy can cost a patient on average RM 20,000 to RM 200,000 per month. Again, the life cycle is short (or uncertain), and pharmaceutical companies need to pay back the initial costs in R&D in a short period making high prices necessary. You can imagine how much the co mpanies need to pay for a team of top tier scientists who have been on the job(p) in the laboratory day and night for many years dapple developing the drug.Finally, as a short revision on life cycle costing, suppose a new cancer curing drug XXX is expected to have sales of 100,000,000 units in the coming 10 years. The selling price is targeted at RM 1,000 per unit. R&D is RM 10,000,000,000, design cost is RM manufacturing cost RM marketing RM distribution costs another RM 100,000,000 and finally customer service RM 50,000,000. Find the life cycle profit for XXX as follow RM Millions Sales Design Manufacturing Distribution Marketing Customer service Life cycle profit 1 oo,ooo (10,000) (500) (1000) (100) (50) 88,250 The life cycle profit is RM 88,250 jillion (or RM 88,250,000,000).It is for 10 years and thus on average every year the profit is RM 8,825 million which is quite normal for leading pharmaceutical companies. It can be seen that the total life cycle cost is RM 11,750 mill ion and RM 10,000 million (or 85. 1%) spent on R&D. Life Cycle Costing can be conclude as key asset management tool which takes into account the whole of life implication on the asset starting from the cost planning, acquiring, operation maintaining and disposing. It assist in analyse not only the cost of acquiring an asset but also the costs over an assets life like long-term operational nd maintenance costs.In addition, it will be the guidance on how long term strategic planning process, analysis, evaluation and decision making process towards the asset managements. The best expected outcome can be managed if all the relevant cost and benefits over life span of an asset is taking into account. lastly to overall cost involve in owning, operating and maintaining an asset from the initial planning up till disposal. Thus, selecting the best alternative in order to minimize the possible cost incurred and maximizes the potential savings that can be made.