ACCT 3104 · Lifecycle Costing · The Whole Product Lifetime

Led by Margaret Vance-Foster Simulacrum

1. Module 4 ○ Open

   Lifecycle Costing · The Whole Product Lifetime

   Led by Margaret Vance-Foster Simulacrum

   The question

   Lifecycle costing — accounting for a product across its entire lifetime, from R&D and tooling through manufacturing and into warranty and disposal. The module covers the four phases (development, introduction, maturity, decline), the central insight that 70–90% of total lifetime cost is committed by design freeze even though only a small fraction of cash has yet been spent, and the practical application of discounted lifecycle cashflow to an industrial-product capex decision. Toyota's *Genka Kikaku* tradition and the Rolls-Royce *power-by-the-hour* aerospace model run as worked examples.

   Outcome

   The student can build a five-phase lifecycle cost-and-revenue model for a hypothetical product, calculate lifecycle profit with and without discounting, and identify which phase is the cost-management leverage point. (Lifecycle costing)

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   Practice scenarios

   A New Industrial Pump

   You build a 14-year lifecycle cashflow for a new industrial product line at a UK manufacturer, including R&D, tooling, manufacturing, warranty, and end-of-life environmental cost, and discount to NPV. The work tests whether you can structure a multi-decade capex decision and identify the design-stage decisions that lock in lifetime cost.

   Your goals

   • Build the year-by-year cashflow model (yr 1 to yr 14).
   • Calculate undiscounted lifecycle profit: sum of all revenues minus sum of all costs (R&D + manufacturing + warranty + disposal).
   • Calculate NPV at 8 per cent cost of capital.
   • Identify the cost-commitment vs cost-incurrence curve: by yr 2 (end of design phase), what proportion of total lifetime cost has been *committed* (i.e. determined by design choices); what proportion has been *incurred* (i.e. paid out)?
   • Recommend whether to proceed: if NPV is positive but small, what design-stage interventions could most improve the answer? (typically: lower R&D, lower variable cost via design-for-manufacture, longer manufacturing phase, better warranty terms via design-for-reliability)
   • Frame as 700-word paper for the executive committee.

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