§ If all costs cannot be recovered, it would not be wise to produce the product or service.
§ Life-cycle costing allows an analysis of business function interrelationships, e.g. a decision towards lower R&D costs may lead to higher customer service costs in the future.
Performance management – control
§ Many companies find that 90% of the product’s life-cycle costs are determined by decisions made in the development and launch stages. Focusing on costs after the product has entered production results in only a small proportion of life-cycle costs being manageable.
§ Target costs should be set throughout the life-cycle and revised/changed as needed.
Performance management – reporting
§ R&D, design, production setup, marketing and customer service costs are traditionally reported on an aggregated basis for all products and recorded as a period expense.
§ Life-cycle costing traces these costs to individual products over their entire life cycles, to aid comparison with product revenues generated in later periods.
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