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Life cycle costs can apply to services, customers and projects as well as to physical products.
Traditional cost accumulation systems are based on the financial accounting year and tend to dissect a product's life cycle into a series of 12-month periods. This means that traditional management accounting systems do not accumulate costs over a product's entire life cycle and do not therefore assess a product's profitability over its entire life. Instead they do it on a periodic basis.
Life cycle costing, on the other hand, tracks and accumulates actual costs and revenues attributable to each product over the entire product life cycle. Hence the total profitability of any given product can be determined.
The major characteristics of product life-cycle concept are as follows :
(i) The products have finite lives and pass through the cycle of development, introduction, growth, maturity, decline and deletion at varying speeds.
(i) The products have finite lives and pass through the cycle of development, introduction, growth, maturity, decline and deletion at varying speeds.
(ii) Product cost, revenue and profit patterns tend to follow predictable courses through the product life cycle.
(iii) Profit per unit varies as products move through their life cycles.
(iv) Each phase of the product life-cycle poses different threats and opportunities that give rise to different strategic actions.
(v) Products require different functional emphasis in each phase-such as an R&D emphasis in the development phase and a cost control emphasis in the decline phase.
(vi) Finding new uses or new users or getting the present users to increase their consumption may extend the life of the product.
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