Final answer:
Life cycle costing evaluates the total cost of ownership of a product, including acquisition through disposal. The product life cycle consists of introduction, growth, maturity, and decline, with varying cost profiles such as high R&D and advertising costs in the initial phase, and declining costs as the product reaches maturity and decline.
Step-by-step explanation:
Life cycle costing is a methodology for assessing the total cost of ownership, or the full cost of products/services over their useful life. The approach examines all costs associated with acquiring, owning, and disposing of a product.
The four stages of life cycle costing include:
- Acquisition: Initial purchase price and associated costs with acquiring the product.
- Ownership: Operating, maintaining, and using the product throughout its life.
- Operating: Regular costs incurred for the product to perform as intended.
- Disposal: Costs of decommissioning, disposing of, or recycling the product.
The four stages of the product life cycle and the nature of costs incurred in each phase are:
- Introduction: High research and development and advertisement costs; Sales discounts and maintenance are low or moderate.
- Growth: Lowering research and development costs; Advertisement high, as awareness is being built; Sales discounts and maintenance costs are moderate.
- Maturity: Lowest research and development; Advertisement and sales discounts might be high to maintain market share; Maintenance and after-sales service can be high due to large installed base.
- Decline: Research and development low or none; Advertisement decreases; Sales discounts may be high to clear inventory; Maintenance costs can be variable.
Understanding these costs and stages helps businesses make informed decisions about pricing, marketing, investment in R&D, and resource allocation for customer service and maintenance strategies.