Lifecycle costing

This topic has 5 replies, 2 voices, and was last updated 7 months ago by John Moffat.

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November 12, 2021 at 1:24 pm #640479
AshleyMarc1997
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In Lifecycle costing, we take into account all the costs over the life of a product whether it would be opportunity cost; depreciation cost; or dismantling cost

Because depreciation cost is not a cash flow and dismantling cost only happens once after the end of a product life so we should include them?

In short, we take all the costs of a product?
November 12, 2021 at 5:59 pm #640499
John Moffat
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Given that we will be including the initial cost of any assets involved we do not include deprecation as well because that would be including the cost twice.

We do include any end of life costs such as dismantling.
November 12, 2021 at 6:58 pm #640504
AshleyMarc1997
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Opportunity costs / any non-cash flow / sunk cost / would also be included in the lifecycle calculations (true?)
November 13, 2021 at 4:21 pm #640562
John Moffat
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Not true.

We include all costs directly attributable to the new product being considered.
November 14, 2021 at 8:52 am #640603
AshleyMarc1997
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To be honest that was obscure to me!

I read somewhere in a book that opportunity cost is relevant to the lifecycle costing calculations.

And depreciation is included but I wanted to know that whether all non-cash flow is relevant or not?

Sunk cost which is the past cost is not relevant because it is a historical cost that is not relevant to the lifecycle costing.

So I wanted to make sure whether they all are true or not.

Thanks for your time although. May you have a good life 🙂
November 15, 2021 at 7:37 am #640658
John Moffat
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Depreciation is the spreading of the initial cost of the asset being used.

So if we include the initial cost (as we do) then we do not include the depreciation as well because that would be accounting for it twice 🙂

It is better if you refer to a question on this in your Revision Kit that is causing you problems, because so much depends on the wording and information given in the question.
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