Describe in detail the life cycle costing.
Answers
Life cycle costing, or whole-life costing, is the process of estimating how much money you will spend on an asset over the course of its useful life. Whole-life costing covers an asset’s costs from the time you purchase it to the time you get rid of it.
Buying an asset is a cost commitment that extends beyond its price tag. For example, think of a car. The car’s price tag is only part of the car’s overall life cycle cost. You also need to consider expenses for car insurance, interest, gas, oil changes, and any other necessary maintenance to keep the car running. Not planning for these additional costs can set you back.
The cost to buy, use, and maintain a business asset adds up. Whether you’re purchasing a car, a copier, a computer, or inventory, you should consider and budget for the asset’s future costs.
Life cycle costing process
Conducting a life cycle cost assessment helps you better predict how much your business will pay when you acquire a new asset.
To calculate an asset’s life cycle cost, estimate the following expenses:
Purchase
Installation
Operating
Maintenance
Financing (e.g., interest)
Depreciation
Disposal
Life cycle costing or whole-life costing is the process of estimating how much money you will spend on an asset over the course of its useful life.