Every product or service comes through stages to reach the market. Costs are incurred from stages of design, development, market launch, promotion, sales and to the point a product or service is withdrawn from circulation. These costs are called life-cycle costs
These costs have the following components:
- Costs of research, design, production and testing. These are the acquisition costs.
2. Transportation and handling make up distribution costs,
3. There are also maintenance costs which include factory maintenance, field maintenance and customer care maintenance.
4. Training costs.
5. Operation costs which include various utility costs,
6. Technical data costs of acquiring technical data,
7. Inventory costs. These are costs of warehousing,
8. Retirement costs.
Life-cycle costing is a management accounting system used to track and accumulate actual costs and revenue traceable to a project over its life cycle.
This system simplifies the determination of the profitability of a project. This system is opposed to the traditional systems.
The traditional systems report costs at the physical production life cycle and don’t accumulate cost over the life cycle of a project.