2. Meaning
It is a technique which takes
account of the total cost owing a
physical asset or making a product
during its economic life.
3. Definition
The term project life cycle costing has
been defined as following “It includes the
cost associated with acquiring , using , caring
for and disposing of physical asset including
studies , research design ,development,
production , maintenance , replacement and
disposed as well as support training and
operating cost generated by the acquisition
,use ,maintenance and replacement of
permament physical asset ‘’
4. of project life cycle
cost
Initial
cost
Operating
cost
Disposal
cost
5. Initial cost
The cost which incurred initially for a
particular project .i.e. if asset is purchased
by a supplier then the following initial
costs are :
(i) - acquisition
- installation
- commission
- obtaining space
6. (ii) - recruitment and training of operation
staff and maintenance engineers
(iii) - purchase of ancillary maintenance
equipments
7. Operating cost
The operating cost for an item of capital
equipment includes not just operator cost
and also maintenance cost to support
services such as :
- material handling
- quality control
- continued training recruitment for
new staff and so on .
8. Disposal costing
Disposal costing is a significant for a
fixed asset because the asset must be
demolished and removed and the site
made good for other use . These cost may
be upset by the disposal value of the asset.
9. Example
ABC LTD purchased a machine for Rs/-
2000 on 1st January 2001 which had a
useful life of 5 years and an estimated
residual value of Rs/-500. The machine
was being depreciated on straight line
basis. However, ABC LTD decided to sell
the asset on1 January 2003 for Rs/-1500
in order to raise cash for the purchase of a
new machine.
10. Optimization of project life cycle
cost
Optimization of project life cycle cost
nothing but optimization of costs ,
situation , opportunity or resources . It is
for we manage our times so that we
optimize our productivity .This is through
the following stages .
17. Illustration
In organic chemical limited is about to replace
its old boiler equipment either by a coal fired
system (or) other by the oil fired system . Financial
cost 15% a year and other estimated costs are as
followes :
If the company expected new boiler system to
cost at least 15 years of which system should be
choose ?
PARTICULARS COAL OIL
Initial cost of boiler 70000 100000
Annual operating
cost
60000 p.a 45000 p.a
