PERFORMANCE MANAGEMENT(PM)

JOJO TOMY ACCA

INTRODUCTION
• Traditionally the costs and revenues of a product are assessed on a financial year or
period by period basis.

• Product life cycle costing considers all the costs that will be incurred from design to
abandonment of a new product and compares these to the revenues that can be
generated from selling this product at different target prices throughout the
product's life.

PERFORMANCE MANAGEMENT(PM)
JOJO TOMY ACCA
PRODUCT LIFE CYCLE
Stages Cost Demand Revenue Profit
Development stage • R&D Nil Nil Loss
• Testing cost
• Training cost
• Sampling cost

Introduction • Manufacturing cost Low Revenue Loss

• Distribution cost
• High Marketing cost
• Inventory

Growth • Manufacturing cost Growing Growing Profit

• Distribution cost
• Marketing cost
• Inventory

PERFORMANCE MANAGEMENT(PM)
JOJO TOMY ACCA
Maturity • Manufacturing cost High High High profits
• Distribution cost (maximum) (maximum)
• Inventory
• Marketing cost if long
life cycle product.

Decline • Manufacturing cost Decreasing Decreasing Low profits

• Distribution cost
• Marketing cost
• Inventory
• Disposal

PERFORMANCE MANAGEMENT(PM)
JOJO TOMY ACCA
▪ The level of sales and profit earned over a lifecycle can be
diagrammatically as follows:

D
I
G
M
D

PERFORMANCE MANAGEMENT(PM)
JOJO TOMY ACCA
 Benefits of life cycle costing:
1. Assessing profitability over full life of a product.
2. Useful for organizations that continually develop products having short
life
3. Help generate more revenue & lower costs.
4. Better decisions should follow from a more accurate and
realistic assessment
5. It encourages longer‐term thinking and forward planning.

PERFORMANCE MANAGEMENT(PM)
JOJO TOMY ACCA
How to maximize return over the product life cycle:

• Careful design of product(can save design and manufacturing costs)

• Take the product to market as soon as possible
• Minimize breakeven time (BET)
• Maximize the length of the life span
• Through a heavy advertisement cost at the maturity
• Minor changes in technology

PERFORMANCE MANAGEMENT(PM)
JOJO TOMY ACCA