Life cycle costing: incorporating some non-traditional variables

Woodward, D. (2005) Life cycle costing: incorporating some non-traditional variables. Asian Review of Accounting, 13 (1), 73-80. (doi:10.1108/eb060783).

Record type: Article

Abstract

Previous applications of the life cycle costing concept have approached the task as a mere extension of ‘conventional’ discounted cash flow. So while attempts have been made to identify all relevant variables over the entire lifespan of proposed capital investments, and subsequently attribute estimates to them, analyses have nevertheless stayed very much within the quantitative domain. This paper suggests it is possible to adopt a more sophisticated approach whereby qualitative elements of the decision are also incorporated into the analysis. Taking the example of a European commercial vehicle manufacturer operating in a developing country, it demonstrates the initial calculation of the crucial measure of cost per tonne/kilometre. It then goes on to indicate how, even in those cases where such a figure initially appears unattractive versus the offering of a competitor, the result can be ‘turned round’ to become the favoured alternative when other, less-quantifiable, factors are incorporated into the analysis.

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