Saturday, May 18, 2019

Life Cycle Costing Finding

In management g everywherenment noteing, there argon various termsing manners applicable to use in practice. Some of practitioners are familiar with Job found saluteing, process apostrophizeing and activity based costing. The key idea is to apply the right costing method in the right situation. feeling wheel costing (LCC) offers an other choice to the user. It is usually found in manufacturing, construction, software companies and product development. As we know, consumer and coach aim to make finale on the cost of succeedment and cost of ongoing use of many contrary assets like equipment, motor vehicle, plant and other.As it seems, the key operator to influence the conclusiveness of acquisition on assets is the sign capital cost. In addition, the unrealized cost such(prenominal) as ongoing operation and maintenance cost should be considered before the decision making is made. living circle cost is a process to determine the sum of all the be related with an a sset throughout its manner which include acquisition, installation, operations, maintenance, renovation and brass be.For example, if the managers want to buy the motor vehicle for the adjudicate of company. They are needed to consider the whole breeding troll costing such as their maintenance, their peration, their initial acquisition, and other factor which locoweed give more than information to decision maker to make the damp decision. This report sets out to address what LCC, why LCC, when LCC, how LCC use on the manufacturing industry. The aim is to provide a exculpate understanding toward liveliness rhythm costing in theory and practise.FINDINGS 1 invigoration round cost purport cycle costing is estimates and accumulated costs all all over a products entire deportment cycle in order to determine whether the profits earned during the manufacturing phase will cover the cost incurred during during the pre- (upstream) and post- (downstream) storey. By understand on how to identifying the cost incurred during the different gunpoint of product life cycle, it might help the manager to manage the total costs incurred throughout its life cycle.In addition, life cycle costing is also helps managements deep understanding the cost consequences of developing and making a product and to identify area in which whitethorn cost reduction effective. The process of Live Cycle tolling involves l. Assessing costs arising from an asset over its life cycle. Asset life cycle consist of various phase which are planning, acquisition, managing, distribution, and disposition. Though the asset life cycle, all the cost arising from all(prenominal) phase must be estimated at the earlier stage to avail in the cost reduction.The acquirer should consider all relevant cost because it is not only most the initial investment and acquisition cost, but all cost occurred over the anticipated life cycle of the assets. II. Evaluating alternative that have an effect on th e cost of ownership. The comparisons of asset alternative whether it is at the opinion or detailed design level should be evaluate in order to chance on better outcomes from the assets. individually alternative may have different pros and cons. claiming unfriendly alternative may affect all the cost incurred during the period of ownership.Therefore, a thorough evaluation shall be made to avoid unwanted circumstances. For example, the restless call up industry such as Nokia, Samsung, HTC and other is a fast moving product. smell cycles are in short, mobile phone manufacturers spent lots of money on RD and they have to recover these costs in a short period of time. This explains why newly released mobile phones are sold at such mellowed prices. 1. 2) Reason for use Life Cycle embodying 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 emolument on every alternatives.A stra tegize development and implementation of plans and programs for the assets should be do to ensure that the assets operational 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 disposed of. It will dress a manikin 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 systematic tools like sparing appraisal, financial appraisal, value management, risk management and demand management in weighing up the costs and benefits, risks, objective, revenues and expenditures. V. Enables the decision maker to balance the performance, reliability, maintain ab ilities 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 can be used in three stages Life 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 being considered. It is to estimate the incoming cost and provision to be made over the life of the assets. For example, the different type and designs of machine to increase the sales production for the manufacturing industry. II. The acquisition stage. This is the stage where the supplier for the assets is being assessed. It is to assist in the selection of the most cost-effective option. Ill. The service stage.The stage of decision making on whether to maintain, improve or dispose of the assets. It is to improve the cost effectiveness of the production as puff up as to improve the specification of future assets. For e xample, when automotive manufacturing products their car product, they are improving their quality of car. So that to ensure the customer still keeps loyalty to buy their car for future. 1. 4) Estimate Life Cycle cost The formula to calculate the life cycle costing Life Cycle Costing = Capital Cost + Life Time Operating Cost + Life Time Maintenance Costs + Disposal Cost Residual Value Product 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 service and distribution stage. Committed or locked-in costs are costs have not been incurred soon but that will be incurred in the future after the decision basis 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 co mmitted 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 service and distribution phase, its focus more on cost containment than cost management. 1. 4. 2) Life Cycle Costing put The information should be obtained before selecting a model.This is to ensure that the compendium 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 property of the asset being analyzed. It includes the intended use environment, maintenance concept, operating and maintenance support scenarios and any constraints and limitations. II. sc hoolwide to include and highlight the relevant factors to the Life Cycle Costing asset. Ill.Easy to understand in order to brook 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, transportation and others. 1. 4. 4) Benefits of Life Cycle Costing The benefits the manager can gain from Life cycle costing are I. Planning 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 accurate assessment of cost and revenue. Ill. Securing funding. The comparison between the alternatives that have different cash flow patterns over time is important. This is because there are corporate cash lows issues that need to be considered. Life cycle costing analyses 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 credibility of future life cycle costing plans can be achieved. . 4. 5) Life Cycle Costing Process Life cycle costing involves six 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 review to ensure the plan has been interpret mightily and address clearly. Stage 2 Select or Develop Life Cycle Costing poseur All relevant categories of cost that will happen 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 defined 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 analysis 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 mecha nism. Stage 6 Implement and Monitor Life Cycle Costing Analysis Life cycle costing should have a continuous monitor 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 pharmaceutical products, the product life cycle is becoming shorter and shorter s new products keep being developed for the merchandise demand purposes.It is not surprising that new drugs are being sold at very high prices. For example, drugs which are used to fght cancer in targeted therapy can cost a patient on second-rate 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 intend how much the companies need to pay for a team of top tier scientists who have been working in the laboratory day and night for many twelvemonths while developing the drug.Fi nally, 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 gross revenue 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 million (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 million 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 o f 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 better(p) expected outcome can be managed if all the relevant cost and benefits over life thwart 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.

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