We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Life Cycle Costing?

By Carol Francois
Updated May 16, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Life cycle costing (LCC) is also known as cradle-to-grave costing. The purpose of this type of accounting is to provide a complete record of all the costs associated with the product or service. This type of costing is commonly found in manufacturing, product development, construction, and software companies.

In order to properly track life cycle costing, the accounting system must be configured or set up to manage this type of accounting in advance. In most accounting systems, there is a standard set of general ledger accounts that are used to track expenses and revenue. Life cycle costing requires the creation of additional, non-standard general ledger accounts. The purpose of these accounts is to group similar costs together for accurate reporting, while not inflating the financial statement reporting.

Many firms combine life cycle costing accounting with more standard cost accounting. In this method of accounting, cost centers and profile centers are used to track activity related to a specific product or category. For example, if a cosmetic company develops a new skin cream, they may create a cost center to track all the costs related to the original development in a unique cost center.

If the product is successful and moves from development to production, they may create another cost center to track activity at this stage of the process. Once the item is available for sale and distribution, they may use a different cost center to track that activity. This method has the benefit of tracking costs at the different stages, helping staff to focus on the current transactions.

In order to unify these different cost centers to provide a holistic view of the life cycle costs of the product, the company can use either cost center groups or sub-ledger accounts. Either method is fine, as long as it is applied consistently to the transactions. If the firm decides to change its methodology, an entire project may be required to translate prior transactions to the new system and ensure that all the values reconcile.

The accounting system is usually customized to provide a series of reports to track life cycle costing. These reports typically cover multi-year time periods, as the process to create a new product, bring it to market, and then retire it is quite long. Review the standard accounting reports that are provided with your accounting system and then develop the specifications of exactly what is required to meet your needs.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

By Azuza — On Sep 19, 2011

@JaneAir - That's very true. Sometimes I think it would be great if consumers could see how much it really costs to produce and item.

I feel like people complain about prices a lot, and sometimes it's justified. But other times, I feel like if people knew anything about business or manufacturing, they would understand a little bit about the pricing.

After all, most business aren't out to do community service. They need to make a profit!

By JaneAir — On Sep 18, 2011

I can see why companies do this. How could you get an accurate picture of your profits if you don't know how much it cost you to make something?

This knowledge could also guide business decisions. For example, if a product costs a lot to produce but doesn't generate very much profit a company could discontinue that. Or, if a product is cheap to make but generates a lot of profits, the company might choose to make more of it!

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.