Pros And Cons Of Life Cycle Costing

Pros of Life Cycle Costing

Consideration of all cost

In life cycle costing, all sorts of cost will be list out, for instance, operating cost, production and implementation cost, maintenance cost and the cost or benefit of the ultimate disposal of the assets at the end of its life (Swaffield & McDonald, 2008). Besides, an overall framework which total incremental costs over the life span of a certain product is also taken into the account (Agarwal, R., n.d.).This helps management to better understand the difference between acquisition cost and operating cost which aids them in finding balance between investment costs and operating expenses (“Benefits of life cycle costing,” n.d.). For example, when one produce or sell a product, the first thing

For example, when we estimate the cost for repair labor, several factors need to be considerate such as failure rates, average time to repair, and hourly wages. Some of these costs are hard to estimate and even the best possible estimates may subject to error and uncertainty which may in turn affect our decision choice. However, if we try to ignore some of the cost that is not able to estimate, it will leads to more costly error (Eisenberger & Lorden, 1977).

Difficult to obtain product’s useful life length

Product’s life span is one of the critical factors that make life cycle costing works. However, determining the life span of a product is somewhat difficult. For example, if we consider wear out as a determinant of life-length, then estimating the life-length of a new and expensive product would be a problem for the management. Furthermore, the analysis would be more complicated, when obsolescence is taken into account (Eisenberger & Lorden, 1977). Management would not able to know or estimate well whether the product or machine chosen will be still in use after 5, 10, 15 years because as time pass, more and more substitution will be coming out since technology evolves from time to time (Mohd, H.,

For example, when we determine the maintenance cost, life cycle costing considered that the technician for the machines will always be ready to serve us and the maintenance cost will always be the same. However, unexpected events might strike at any period (Advantages and Disadvantages,” 2016). For instance, the technician might no longer serve our company as the contract has ended, or maintenance cost may change due to future difficulties such as increase of material cost, or the company itself is facing financial problem and is struggling to pay for the fees. Life cycle costing does not consider these unexpected events as part of it, thus, when these events occur, the company might be affected