Life Cycle Costing (LCC) technique is used to determine the total cost of manufacturing a product with an objective of assisting in pricing decisions. It is based on product life cycle concept. It covers the entire life of the product, i.e., from the inception of the idea to the product distribution and sales and progress through different phases of its life cycle. Life cycle costing technique is also applicable to costing of assets. This method makes costs noticeable in relation to various stages of the product life and thus it is easier to analyze whether the cost incurred at a specific life stage is justified or not. Life cycle costing also helps in planning various expenditures in juxtaposition to product or asset life stage. This article discusses some aspects of LCC.

Pricing decisions are not simple ones. Much analysis is done before arriving at the price of any product. Numerous factors need to be considered in the process of deciding the price. One of the major considerations of such exercise is the cost of the product. A number of costing techniques are adopted by organizations to arrive at the total cost to market the product. One such technique is LCC. This technique has the unique advantage of inclusion of all cost items pertaining to different life cycle stages in the total cost, while other methods consider total cost or allocated fix cost plus unit variable cost or price of similar products in the market or a predefined return on investment, etc. Life cycle costing technique considers cost since the inception of the product idea to the disposal or the withdrawal of the product, if needed. Life cycle costing technique encompasses almost all types of costs incurred on a product, which tremendously helps in deciding the price of the product. This technique is equally applicable in arriving at the total cost of the assets owned by the organizations.

While costing for a particular product, one can even include the cost of research for idea generation but the life cycle of any product comprises four distinct phases; introduction, growth, maturity and decline. The behavior of cost and revenue during different phases is shown in Figure 1. Product Life Cycle (PLC) concept plays a significant role in formulation and implementation of strategies as per the stage-wise requirements of the product. Product life cycle exhibits an analogy with the life cycle of human beings. As a human being is born, a product is also developed and then both grow, attain maturity and both die. There are two basic differences in the life cycles of product and human being; the life span of a product can be controlled and managed by the organization and it can be infinite, unlike the life cycle of human beings.

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