Product Life cycle & cost control

Product and services typically have to pass through a series of distinct phases is termed the product
life- cycle. Product Life-cycle is the pattern of expenditure, sales level, revenue, and profit over the
period from new idea generation to the decision of a product from the product range.

PLC is the way to enhance the control of manufacturing costs.The thrust of the product life-cycle
costing is the distribution of costs among categories changes over the life of the product , as does
the potential profitability of a product. Hence it is important to track and measure cost during each
stage of a product’s life-cycle; research and development, design of a product, production,
marketing, distribution and aftersales services. It is known that the majority of product are
determined at early stage of the product life-cycle.

Product Life-cycle costing approach is used to provide a long term picture of product line
profitability. The major benefit of adopting product life-cycle costing is that it provides an overall
framework for considering total incremental cost over the entire life span of a product, which in turn
facilitates the analysis of part of the whole where cost effectiveness might be improved.

Experience Curve in the product life-cycle costing.

The essence of experience curve theory is that the real cost of generating products and services
decline by between 20 and 30 percent whenever cumulative experience doubles. An important
distinction needs to be drawn between the experience curve and the learning curve. The latte
relates to labour hour and hence labour cost. As a consequence, the reduction is cost due to learning
curve are reflected by the experience curve. Several causes of cost reduction act together within the
experience curve, such as the learning experience, the effect of labour specialisation and scale due
to increased volume.

The Experience curve is not derived from accounting costs but b dividing the cumulative cash input
by the cumulative cash output of end product and the cost decline is shown by the rate of change in
the ratio over a period of time. From this rate of change managers can see how and why their
competitive needs are shifting. The main strategic message from the experience curve is that if cost
per unit in real term decrease predictably with cumulative output, then the market leader has the
potential to achieve the lowest costs and the highest profits.