Lifetime Cost

Posted in Finance, Accounting and Economics Terms, Total Reads: 234
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Definition: Lifetime Cost

Lifetime cost is the sum of the total cost incurred in possessing a good over its expected lifetime and the cost of purchasing the good. The additional cost includes maintenance cost, upgradation cost, cost of training, operational costs, insurance, renovation costs etc. Sometimes these costs add up to more than the initial purchase price of the good.


For e.g. Mr. A wants to buy a printer and finds that the purchase price of a printer is $200. But he needs to consider the lifetime cost of a printer while making the purchase decision. For a printer the life time cost includes the cost of cartridge, cost of printer maintenance kit, cost of service personnel and other breakdown costs.


Let’s assume that the Cartridge cost = $100 and yields 20,000 printed pages.


Printer Maintenance kit cost is $250 and yields 225,000 pages and would require a service personnel to work on it for 1 hour, hourly charges being $30.

The monthly volume of the printer is assumed to be 50,000 pages and its life expectancy is 5 years.

So the total number of pages that can be printed is 50,000 * 12 * 5 = 3,000,000 pages.

It would require a purchase of 150 toner cartridges, 13 maintenance kits and 13 hours of service personnel over its lifetime period.

So lifetime cost = 200 + (100*150) + (250*13) + (30*13) = $18,840 or $0.00628 per page.

Now Mr. A can use this cost to make a decision whether to buy the printer or use third party services to print the pages.

 

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