Life Cycle Costing - Contemporary Concepts, Cost Management Video Lecture | Cost Management - B Com

life cycle costing is the approach
companies now used to understand and
manage all costs incurred in product
design and development through
manufacturing marketing distribution
maintenance service and finally disposal
managing lifecycle costs is also known
as managing costs from the cradle to the
grave to better explain life cycle
costing let's take a look at three
different types of light bulbs on the
left is a light emitting diode also
known as a LED in the middle is a
compact fluorescent light bulb also
known as a CFL on the right is an
incandescent light bulb
okay so let's say a light burned out in
your house and you need to go to the
store to buy a new one once you get
there you see that the incandescent
bulbs are rather cheap about a dollar
fifty in this example CFLs run you about
twice as much around three dollars and
LEDs can run ten times the amount of CFL
bulbs about thirty dollars now while at
first it seems that the most obvious
choice would be to choose an
incandescent bulb you can see that the
lifecycle cost of each bulb is very
different and this is because of the
varied wattage between each bulb LEDs
and CFLs are much more efficient than
incandescent bulbs meaning for a lot
less wattage they can produce the same
amount of lumens or light because LEDs
and CFLs use so few watts to produce the
same amount of light the price of
electricity per kilowatt hour is much
less for LEDs and CFLs therefore the
cost to light your home with an
incandescent bulb can cost you $900 for
50,000 hours and for CFL about 210
dollars and for an LED only about 90
dollars not to mention you would need to
buy 33 incandescent bulbs because of
their short lifespan and 5 CFL bulbs and
an only one LED bulb by buying a more
efficient bulb you not only save money
replacing these bulbs but you also save
a lot of time changing out each bulb
not to mention 33 incandescent bulbs
take up a lot more space in our landfill
than five CFL bulbs or one LED bulb life
cycle cost assessments are important
because they not only save us time and
money but also can help reduce the
amount of waste that we create this
light bulb example explains why looking
at the lifecycle costs of the material
choices that we make are very important
in management accounting the life cycle
costing method spreads the expense of an
asset out evenly over several years this
method has several advantages and
disadvantages the disadvantages to this
method are that it could be very time
consuming to assess the
lifecycle costs of a product or for all
of our businesses assets plus the
lifecycle caustic concept assumes an
asset will be productive in later years
as if it were new which may not be the
case if a piece of equipment for example
gradually slows down you'll be earning
less income from it than expected which
will affect the assessed value of the
equipment if an LED bulb malfunctions or
breaks you're out another $30 as we
discussed in our previous example
however there are many advantages to
life cycle cost assessments life cycle
cost assessments result in earlier
actions to lower costs more accurate and
realistic assessments of revenues and
costs and therefore better decision
making it encourages businesses to find
a correct balance between investment
costs and operating expenses the
profitability of individual products can
be better understood by properly
assessing the lifecycle costs of all
products
you