Life-cycle costing

In this lesson

1. 0:00 Lifecycle Costing Introduction
2. 0:27 The Five Stages Product Lifecycle
3. 3:00 How Lifecycle Costing Differs Traditional
4. 4:03 Calculating Lifecycle Cost Per Unit
5. 5:43 Worked Example Product Queue
6. 8:45 Key Takeaways and Summary

About this lesson

You'll explore the five stages of a product lifecycle, see how lifecycle costing differs from traditional annual costing methods, and work through a practical calculation to find the total cost per unit across a product's entire lifespan. By the end, you'll understand why incorporating all costs — from research and development to decommissioning — matters for making sound investment and product decisions. The lesson starts by breaking down the product lifecycle into five distinct phases: development, introduction, growth, maturity, and decline. You'll see how costs and revenues behave at each stage, and why traditional costing systems can give a misleading picture of profitability. Lifecycle costing addresses this by recognising that many significant costs — like design, equipment, and decommissioning — occur outside the production period, yet directly affect the product's true cost. The core calculation is straightforward: divide total lifecycle costs by total lifetime units to find cost per unit. The worked example walks you through identifying all relevant costs — design costs, direct manufacturing costs, depreciation, fixed production overheads, and decommissioning — then absorbing overheads on a machine hour basis to arrive at a complete picture. You'll see how to apportion shared costs fairly and why precision matters when deciding which products to develop and bring to market.

Duration: 9m