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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?
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.
Opportunity costs / any non-cash flow / sunk cost / would also be included in the lifecycle calculations (true?)
Not true.
We include all costs directly attributable to the new product being considered.
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 🙂
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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