Explain the concept of life-cycle costing and its role in evaluating the total cost of ownership of a product or service.

Life-cycle costing is a comprehensive approach to evaluating the total cost of ownership of a product or service over its entire life cycle, from inception to disposal. Unlike traditional costing methods that focus solely on upfront purchase costs or production expenses, life-cycle costing considers all costs incurred throughout the product or service’s life span, including acquisition, operation, maintenance, and disposal costs.

The concept of life-cycle costing recognizes that the total cost of ownership extends beyond the initial purchase price and encompasses various direct and indirect costs incurred at different stages of the product or service’s life cycle. These costs may include:

Acquisition Costs:
This includes the initial purchase price of the product or service, as well as any costs associated with installation, setup, or customization.

Operating Costs:
Operating costs encompass expenses incurred during the product or service’s operational phase, such as energy consumption, maintenance, repairs, consumables, and labor costs.

Maintenance Costs:
Maintenance costs include expenditures related to routine upkeep, preventive maintenance, and corrective repairs to ensure the product or service operates efficiently and remains in good working condition over time.

Downtime and Disruption Costs:
These costs account for productivity losses, downtime, and disruptions caused by equipment failures, maintenance activities, or service interruptions, which can have significant implications for business operations and profitability.

Replacement or Upgrade Costs:
Replacement or upgrade costs involve expenses associated with replacing outdated or obsolete equipment, components, or technologies to maintain competitiveness and meet evolving customer demands.