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Fig. 13.1. Product Life Cycle

This document discusses product life-cycle costing. It describes the five stages of a product's life cycle: pre-infancy, infancy, growth, expansion, and maturity/decline. It also outlines the four types of costs incurred over a product's life: upstream costs like research and development; production costs; downstream costs like marketing and distribution; and post-sales service costs. Finally, it provides an example of life-cycle costing calculations for a new product model from Rene Corporation expected to have costs totaling $90 million over its 3-year life cycle.

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Bea Christine
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88 views2 pages

Fig. 13.1. Product Life Cycle

This document discusses product life-cycle costing. It describes the five stages of a product's life cycle: pre-infancy, infancy, growth, expansion, and maturity/decline. It also outlines the four types of costs incurred over a product's life: upstream costs like research and development; production costs; downstream costs like marketing and distribution; and post-sales service costs. Finally, it provides an example of life-cycle costing calculations for a new product model from Rene Corporation expected to have costs totaling $90 million over its 3-year life cycle.

Uploaded by

Bea Christine
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Product-Life Cycle Costing

Life-cycle costing estimates and determines the total cost of a product over its life cycle. A product life
has five (5) stages, namely: pre-infancy stage, infancy (or start-up stage), growth stage, expansion stage,
and maturity/decline stage, as shown below.

Fig. 13.1. Product Life Cycle

The product life-cycle costing is related to quality-based business cycle premised on the proposition that
quality starts from “effective listening to customers”. It commences from research and development, to
design engineering, production, marketing, channels of distribution, and customer services. This process
is shown below.

Fig. 13.2. Strategic Business Cycle

This new business cycle has four (4) groupings of costs: upward costs (e.g., research and development
and design engineering), production costs, downward costs (e.g., marketing and channels of
distribution), and post-sales services cost (e.g., customer services).

Sample Problem 13.3. Life-Cycle Costing

Rene Corporation is introducing a new model in one of its product lines. This model is expected to have
a 3-year product life and would incur the following costs and production (M= millions):
Upstream costs (e.g., research, development and product design) 20 M
Production costs 40 M
Downstream costs (e.g., marketing and channel of distribution) 20 M
After-sale services costs 10 M
Total product costs P90 M
Estimated production in units:
Infancy period 1M
Growth period 4M
Expansion period 8M
Maturity period 2M
Total 15 M

Required: Determine the strategic sales price over the life of the model if:
1. Unit sales price is set at 200% of the total product costs.
2. Unit sales price is set at 150% in the first year, 400% in the second year, and 120% in the third year.

Solutions / Discussions:

1. The life-cycle unit cost is P6.00 (e.g., P90 M/ 15 M). The unit sales price is P12.00 (eg, P6 x 200%).

2. The sales prices are:

First year P6 x 150% P 9.00


Second year P6x 400% 24.00
Third year P6 x 120% 7.20

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