It takes into account all costs of acquiring, owning, and disposing of a building or building system. LCCA is especially useful when project alternatives that fulfill the same performance requirements, but differ with respect to initial costs and operating costs, have to be compared in order to select the one that maximizes net savings. For example, LCCA will help determine whether the incorporation of a high-performance HVAC or glazing systemwhich may increase initial cost but result in dramatically reduced operating and maintenance costs, is cost-effective or not. LCCA is not useful for budget allocation.
How to Write a Summary of an Article? Life Cycle Costing Finding In management accounting, there are various costing methods applicable to use in practice. Some of practitioners are familiar with Job order costing, process costing and activity based costing.
The key idea is to apply the right costing method in the right situation. It is usually found in manufacturing, construction, software companies and product development. As we know, consumer and manager need to make decision on the cost of acquisition and cost of ongoing use of many different assets like equipment, motor vehicle, plant and other.
As it seems, the key factor to influence the decision of acquisition on assets is the initial capital cost. In addition, the unrealized cost such as ongoing operation and maintenance cost should be considered before the decision making is made. Life cycle Costing is a process to determine the sum of all the costs related with an asset throughout its life which include acquisition, installation, operations, maintenance, renovation and disposal costs.
For example, if the managers want to buy the motor vehicle for the purpose of company. They are needed to consider the whole life cycle costing such as their maintenance, their peration, their initial acquisition, and other factor which can give more information to decision maker to make the better decision.
The aim is to provide a clear understanding toward life cycle costing in theory and practise. By understand on how to identifying the cost incurred during the different stage Life cycle costing finding 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 deeply understanding the cost consequences of developing and making a product and to identify area in which may cost reduction effective. The process of Live Cycle Costing involves: 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 each phase must be estimated at the earlier stage to facilitate in the cost reduction.
The acquirer should consider all relevant 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. Evaluating alternative that have an effect on the cost of ownership.
The comparisons of asset alternative 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 affect 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.
Life cycles are short, mobile phone manufacturers spent lots of money on R;D and they have to recover these costs in a short period of time. This explains why newly released mobile phones are sold at such high prices. 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 every alternatives. A strategize development and implementation of plans and programs for the assets should be done to ensure that the assets operational objectives are achieved at optimum cost.
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 serve a framework on how the asset will be acquired; planning for the upgrade and maintenance and disposal process will be managed.
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. This is the stage when the initial proposal for investments is being considered.
It is to estimate the future 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. 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. 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 well as to improve the specification of future assets.
For example, 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.
Committed or locked-in costs are costs have not been incurred currently but that will be incurred in the future after the decision basis has been made.Life Cycle Costing. Purpose Life Cycle Costing (LCC) is an important economic analysis used in the selection of alternatives that impact both pending and future costs.
It compares initial investment options and identifies the least cost alternatives for a twenty year period. Life-cycle cost analysis (LCCA) is a method for assessing the total cost of facility ownership.
It takes into account all costs of acquiring, owning, and disposing of a building or building system. such as life cycle costing [ Based on its perceived benefits, the European Commission would like to encourage and facilitate the wide use of LCC by making available tools and approaches that could help the application of.
The Tacoma (Washington) School District has been using life-cycle costing successfully for several years to compare energy efficiency of climate-control systems for new schools.
The analysis includes.
1) Life Cycle Costing Concepts The process of Live Cycle Costing involves: I. 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.
The Life Cycle Cost (LCC) of an asset is defined as: “The total cost throughout its life including planning, design, acquisition and support costs and any other costs directly attributable to owning or using the asset”.