3.review Article (RA) Comparison of The Product Life Cycle Cost System With The Traditional Cost System... Serdar KUZU

Review
International Journal of Basic and Clinical Studies (IJBCS)

2012;1(1): 20-3! "u#u S
Co$%arison of t&e 'roduct (ife C)cle Cost S)ste$ wit& t&e *raditional Cost S)ste$
and its +%%lication on a '&ar$aceutical Co$%an)
Serdar ",-,
.
.
Social Sciences /ocational 0i1& Sc&ool2 Researc& +ssistant2 Istan3ul ,niversit)
+3stract
The developments in information technologies in the world have led to developments
in the technologies used in production. Labor-intensive production technology has been
replaced by computer-controlled production. Enterprises are carrying out their production and
sales activities in a fierce competition environment and as a result of consumers demand of
quality and reliable products and quick distribution channels from production enterprises,
enterprises have started to concentrate on their products by striving for high quality low cost,
automation, fleible production and use of technology and information. The heavy increase in
the technological change both in the global pharmaceutical industry and in other sectors has
dramatically shortened the life cycles of products and means of production. !oreover, the
increasing competition has also shortened the life cycles of products, reduced the prices of
products and compelled enterprises to revise new products. Thus the product life cycle cost
approach has come into prominence which focuses on the management of the costs and cost-
effectiveness throughout the life-cycle that starts with the pre-production of products and
services and continues until the disposal of the products and recalling of the products from the
market. The aim of this study is to put forth the function and importance of the product life
cycle cost method, which has emerged as a method that makes up the deficiencies of the
traditional cost accounting, within the scope of cost management and to underline the benefits
of the said method for firms, especially with respect to cost saving. The differences between
the two methods were discussed by means of the application of the product life cycle cost
method on a pharmaceutical firm.
Jel Code: 451
"e) 6ords: Life "ycle "osting, #roduct Life "ycle !anagement, #roduct Life "ycle
#rocess, $ai%en "osting, Target "osting, #harmaceutical "ompany
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Introduction
The concept of #roduct Life "ycle "ost &#L""' was first used in in the mid-()*+s as an
auiliary means to be used by the ,nited -tates .epartment of .efense in the main defense
tenders. /n ()0* a pro1ect entitled 2Life cycle budgeting and costing as an aid in decision
making3 was initiated by the ,nited -tates .epartment of 4ealth, Education and 5elfare &('.
The adoption of life cycle thinking has been very slow in the other industries &6'. #ublic
sector has also been a relevant promoter for life cycle cost calculations &7'.
Later on this situation was changed with the adoption of the first chapter of the /-8 (9+9+, a
part of the international environmental protection standard. The philosophy of product life
cycle includes the following issues &9':
Life cycle valuation
Life cycle management
Life cycle costing
Ecodesign.
(iterature Review
/n literature, about #L"" method, various academic studies has been done by diffrerent
branch of sciences. The summary of these studies are given below; .hillon study about
twentythree different types of life cycle cost models. -ome of the #L"" models are general
and some of them are specific life cycle cost models. The models which are considered as
general category are not very general. This is because of some of them consider ma1or cost
elements and some of them are based on some assumptions. /n conclusion, some of these
models are product specific and the other models are general to some etent. <enerally, these
models are imperfect because they dont have a wide life cycle perspective. &=' #L"" method
is used to asist on decision making by the >** of the companies in a -wedish building
industry -tudy and the some analysis method is used by >9+ of city administrations in a ,.-
-tudy to assess their building pro1ects. &*-0' 4wang and ?ae developed a performance model
which they use to manufacture manufacturing facility design considering systems
configuration, @A! system and the design life cycle cost. The life cycle cost model considers
acquisition cost, maintenance cost, breakdown repair cost and logistic support cost. &B' #L""
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!odel has been used only = > of large industrial companies in a Cinnish -tudy by 4yvDnen.
&)' -andberg and ?oart performed #L"" model for the conceptual development of the
hardware part of functional &total care' products. The discussed design support model can be
used to assess life cycle cost and create a view of how decisions between a number of design,
performance, and manufacturing and maintenance activities affect each other in conceptual
design. &(+'
Enparant%a and @evilla studied about a life cycle cost calculation and management system for
machine tools. The #L"" model considers acquisition cost, operation cost, maintenance cost
and turnoverEscrap cost. &((' "arpentieri and #apariello performed a #L"" calculation model
for automotive production line. The model has two supporting databases which are,
preventive maintenance and corrective maintenance database. &(6' #L"" calculation is used
Aye et al. for analyse a range of property and construction options for a building. &(7' .avis
and Fones performed draft to document and analy%e #L"" for documenting and analy%ing
#L"" using a simple network based representation. The casual factors that lead to costs and
the effect of each technology factor are identifies the and analyses the total cost implications
to introduce a technology factor are analysed by the #L""-GET model. &(9' To quantify
disposal costs, -tudy of Abraham and .ickinsons the disposal of a building in which #roduct
Life "ycle "ost calculation is used. &(='
5idiyanto and $ato studied about forecasting the cost and performance of coal fired power
plant with and without pollution control by #L"" model. &(*' -terner developed a model to
uses #L"" methodology to calculate the total energy costs of buildings. &(0' 4a11 and Aouad
performed a draft of the #L"" model with ob1ect oriented and H@ technologies for a building
which calculates the #L"" at two different levels. &(B' The results of -afety, !aintainability,
Availability and @eliability in .esign Iis performed ?aaren and -mit model development
phase. Their !odel incorporates reliability, availability, maintainability, supportability and
#L"" aspects in the design and development process of large scale comple technical
systems. &()' #L"" Analysis of photovoltaic water pumping system is also performed in
Coster and 4anleys study. &6+'
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Asiedu and <u presented a state of the art review of product life cycle cost analysis models
until ())0. The cost estimation models are divided into three groups which are analogous,
parametric and detailed. /n conclusion the reviewed models are restricted to simple operations
or one phase of life cycle often the design and manufacturing stage. This gives us the
necessity about opinion to develop models which include more parts of the product life cycle
methods. &6(' An analytic method to estimating reliability and life cycle cost of process safety
system is presented by ?odsberg and 4okstad study. &66'
1! 7efinitions of t&e 'roduct (ife C)cle Cost S)ste$
The product life cycle cost is epressed as the total cost that include the planning, design,
acquisition and maintenance costs that occur during the entire product life cycle and other
costs that are directly related to the product and incurred in order to acquire or use the product
&67'. /n other words the product life cycle cost method defines and measures all costs that
occur throughout the economic life of physical assets and targets the optimi%ation of the cost
of the ownership and acquisition with the present value method &69'.
The product life cycle is a process where &6=';
the life of the product is limited,
different marketing, production and financing functions are needed in each phase
of the product life,
the product, cost and profit performance of an enterprise are presented as a means
of managerial control.
2! '&ases of t&e 'roduct (ife C)cle Cost S)ste$
The product life curve begins with the introduction of the new product to the market. The
product 2dies3 if the potential of the product in the market is destroyed due to technological
deficiency or improper strategies followed in the environment of uncertainty. The product life
curve defines the phases of a new product in the market. These phases are introduction,
growth, maturity and abandonment and different product, price, distribution and promotion
efforts are deployed in each phase. #roduct planning is the first step to building the life curve
system.
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As can be seen in the Cigure ( below, introduction phase is the phase where the product meets
the target market. /n this phase sales increase is slow and the profit rate is low. The unit costs
are high &6*'. Losses are made in this phase since there is a high number of promotion
activities and a low sales volume &60'. The growth phase lasts from the break-even point until
the maturity period and enterprises want to prolong this phase. -ales increase and profit starts
to increase. The number of the competitors in the market also increases. The product enters
also other sections of the market and the distribution network widens. /n the maturity phase,
the sales and competition are at the highest level. Enterprises strive to protect their market
shares. -ince enterprise runs in full capacity, unit costs are at the lowest level. The
abandonment phase lasts until the transition to loss due to the decrease in sales. The decrease
rate of each product is different. The decrease period may be slow. /t is difficult to recogni%e
that the product is in this phase. 5hen sales and profitability decrease, some enterprises
abandon the market. The ones that remain in the market, on the other hand, reduce the number
of their products. These enterprises eit the small market sections and weak commercial
channels and reduce their prices by cutting promotion budgets.

/n line with the developments,
especially pharmaceutical companies reduce the sales of their products in the market or even
recall the products from the market due to the competitive environment or an invention which
is more advanced than their invention.
8i1ure 1! *&e Relations&i% 3etween 'roduct (ife C)cle and 'rofita3ilit) (2)!
/ntroduction
<rowth
Maturity Decline
-ales
#rofits
@eplacement
@eplacement
*i$e
'rofits9 Sales
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The life phases of a pharmaceutical product are demonstrated on a product life cycle curve.
As can be seen in Cigure 6 below, this curve shows the situation of the pharmaceutical product
to be introduced to the market by taking into consideration the sales volume and profitability
factors.
8i1ure 2! *&e Relations&i% 3etween 'roduct (ife C)cle and 'rofita3ilit) /olu$e (2:)!
Sales
/olu$e

/ntroduction
<rowth !aturity .ecline

<rowth @ate 4igh 4igh Low Low *i$e
!arket -hare Low 4igh 4igh Low
"ash Geed 4igh Low 4igh Low
#rofitability Low 4igh 4igh Low
#roduction Low 4igh 4igh Low
"ost 4igh Low Low 4igh
8i1ure 3: 'roduct (ife C)cle (30)!
'roduct
(ife
C)cle
Costs
)=>
B=>
'ercenta1e of
+ctual
'roduct (ife C)cle
Costs
**>

"ash
Clow

Calculation
Identical cost

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#lanning
#hase
#reliminary
.esign
.etailed
.esign
#roduct
#hase
Logistic
-upport
As can be seen in Cigure 7, according to the life cycle costing approach, an important part of
the production and after sales costs are related to decisions made in the design phase.
Therefore, the production and usage costs that depend on the pharmaceutical product to be
produced are shaped in the design phase, before the production phase. 5hether in case of
drugs or in case of products, only 6+> of the costs can be manipulated in the production
phase and the following phases and this fact necessitates a cost approach which is not limited
to the production phase &7('. Cigure 9 below shows the flowchart of all phases.
8i1ure 5! 'roduct (ife C)cle Cost 'rocess (32)!
3! *&e Conce%t of 'roduct (ife C)cle fro$ t&e /iew%oint of 'roducer
The product life cycle cost system process is discussed through three viewpoints: consumer
viewpoint, producer viewpoint and marketer viewpoint. /ndeed, these different viewpoints
concerning life cycle constitute a whole. The maimi%ation of the return to be obtained from
the product life or the minimi%ation of the costs cannot be achieved without understanding the
intertangled relationships between these different angles. The producer, calculations consist of
the estimation of the costs of design, engineering, industriali%ation and production of a new
product and in the analysisof these costs throughout the life cycle &77'. The drug producer has
to know what kind of a value is gained by the customer with the product it offers and the cost
incurred by the customer in order to gain the said value &79'. Cor instance, the cost of a car
Research
Development
Research
Development

Desing

Desing

Product

Product
Marketing
Marketing Customer
Customer
High Costs Low Costs
'roduct (ife C)cle 'rocess
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from the viewpoint of consumer &acquisition cost J usage cost J maintenance cost' is the
sales value of the car. ?oeing "ompany paid special attention to the customer life cycle costs
while designing ?oeing 000. /t shortened the time to be spent for routine maintenance by
performing it in different areas and reduced the airplanes acquisition and maintenance costs
and thus 1ustified the high price of ?oeing 000 &7='.
Even though the product life cycle costs of the producer differ depending on the activities
performed during the life cycle, they generally include the following phases &7*';
(. The concept of product,
6. .esign,
7. .evelopment,
9. #roduction,
=. Logistic -upport.
The product life cycle costs of the producer are obtained by adding all costs that occur in the
above phases. 5hile the product life cycle cost analysis from the viewpoint of consumer is
used as a part of the market analysis conducted to find the answer to the question 2how much
should the features of the products cost for the consumer throughout the product life cycleK3,
the producer life cycle costing analysis tries to find out the cost effects of the features of the
products &70'. /n other words, it eplores the effects of a cost incurred for a feature of the
product on the product profitability. Table ( below shows the life cycle cost system that
belongs to different sections.
*a3le 1! 8or$ation of Costs accordin1 to t&e (ife C)cles of 7ifferent 'roducts (3)!
(ife 'roduct
*)%es
C)cle
'&ases
6ar%lanes
Co$$ercial
+ir%lanes
;uclear
4issiles
Co$%uter
'ro1ra$s
@esearch-.evelopment and
.esign
6(> 6+> 6+> 0=>
#roduction 9=> 9+> *+> -
-ervice and .isposal 79> 9+> 6+> 6=>
Average Life "ycle #eriod 7+ years 6= years 6-6= years = years
5! Co$%arison of t&e 'roduct (ife C)cle Cost S)ste$ wit& t&e *raditional Cost S)ste$
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#roduct life cycle costing is a process used throughout the total life cycle of a product. These
costs are eamined in the Cigure below with respect to being charged on the producer and
consumer. The traditional product life cycle activities are displayed on the left side of the
Cigure. 4owever, the broader definition of life cycle also includes the strengthening activities
which are displayed on the right side of the Cigure. Accordingly, the life of the product ends
when the product is no longer useful or when the product is worn out. The producer and user
costs in the real product life cycle are eamined in the Cigure = below:
8i1ure! < *&e Real (ife C)cle and Costs of t&e 'roduct &7)'.
The differences between the life cycle costing and the traditional costing are presented below
&9+'.
*raditional 4et&od '(CC 4et&od
Takes the product
development and logistic
support costs as period cost.
"harges the product development and logistic support costs on
the product cost.
Takes into consideration
only the costs concerning
production in product
costing.
Takes into consideration all costs &including period epenses'
that can be related to the product in product costing.
Attaches importance to the
control of the costs only in
the production phase.
Attaches importance to cost management from the
development phase forward.
/s based on periodical
reporting.
/s based on product life cycle reporting.
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<! *&e Relations&i% of t&e 'roduct (ife C)cle Cost 4et&od wit& ot&er Strate1ic Cost
4et&ods
<enerally, there are three phases in the life cycle of a product: planning, production and
disposal. There are three basic means of decision-making in the said life cycle according to
the product costs:
#roduct life cycle costing
Target costing
$ai%en costing
5hile target costing supports the development and design phases of new models, $ai%en
costing supports the eisting products in the production phase.
Target costing is an approach that is closely related to the design and development of a new
product. Another important issue to be considered with respect to target costing is that the
bigger part of the cost of a product is determined in the product design phase. Especially,
when the fact that pharmaceutical companies incur most of the costs in the @L. phase is
taken into consideration, the importance of target costing comes into the picture. There is little
to be done after a product is designed and started to be produced. Cor, most of the
opportunities for reducing the cost of the product are obtained and used during the design of
the product &9('.The target costing method and the product life cycle costing method comply
with each other precisely at this point and the two methods are intertangled.
The target costing approach determines a target cost and aims at designing the product
according to the determined cost and thus to achieve the targeted cost instead of designing a
product and finding out the cost of the product &96'. /ndeed, the target costing has emerged
out of the need to attain early cost information which is required to be deduced, in the earliest
possible phases &planning and design' of a products life cycle, from the market structure and
the strategies of the enterprise in order to reali%e the planning, management and control aims
&97'.
8i1ure =! 8or$ation of t&e 'roduct (ife C)cle Costs In Case *ar1et Costin1 and
*raditional 4et&ods are ,tili#ed (55)!
Cost
Target
"ost
and
#L""

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Traditional
!ethod
and #L""

*i$e
Source: Ahmet Hehdi "an, Target "osting, Theory and #ractice3, -akarya #ublishing
4ouse, -akarya, 6++9, p.(09

Enterprises should apply target costing and product life cycle costing in an integrated way.
Cor, target costing is meaningful within the approach of product life cycle costing. As can be
understood also from the Cigure above, in case the traditional method is used, the product life
cycle costs acceleratingly increase in the later phases of the life cycle, slow down in the
middle of the life cycle and acceleratingly decrease in the last phase of the life cycle.
4owever, when target costing is used, while relatively more costs are incurred in the early
phases of the product life cycle, great cost saving are provided in the later phases of the life
cycle . Every ( Euro deducted before the production phase provides B-(+ Euros of saving in
the phases following the production phase . As an eample of the firms which utili%e these
savings, Toyota has incurred greater costs in the concept determination and design phases of
the product and obtained considerable savings in costs in the later phases of changes and
additions &9='. The 2more with less3 approach, which was developed by <eneral Electric due
to the parts deficiency during the 5orld 5ar //, has afterwards been transformed into an
organi%ed effort to investigate the ways of providing the needed functions in a product with
minimum cost &9*'. American companies such as Cord and <eneral !otors have also incurred
greater costs in the product design phase and gained considerable cost advantage &90'. @olls-
@oyce states that B+> of the production costs of 6.+++ parts occurs in the design phase &9B'.
$ai%en is a human-based, short-pitch, product-oriented effort that shares information and acts
in line with the motto 2the best is the enemy of good3. -ince $ai%en is a philosophy which
aims to develop all factors concerning the processes where inputs turn into outputs, $ai%en
costing is the use of $ai%en techniques in order to reduce the costs of parts and products at a
pre-determined rate. $ai%en costing aims at small but continuous improvements in all
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activities of competition-based enterprises by focusing on preventing wastes and reducing
costs &9)'.
=! +%%lication in '&ar$aceutical Co$%an)
"ost management through the product life cycle is applied to a <erman pharmaceutical firm
which is called as M. Cirm plans to produce a new pharmaceutical product in 6+(6. #roduct
life cycle is accepted as five years. .uring application period, inflation rate is assumed to be
constant at 7 >.
/n a pharmaceutical firm, items which are included to the application would be affected
differently by the inflation rates. -o in this study, inflation rate is taken as 7> in average for
all these items included in the application. 5hile estimating items net present value, discount
rate is accepted as (6> which is calculated by the weighted average cost of capital. Cor the
reliability of the study, dependable data are included to the application and cash flow L cash
outflow is accepted as ordinary. /tems those would be a part of cost element in production of
the pharmaceutical product &drug' is taken into account. Estimated data of produce and sale
amounts from 6+(6 to 6+(*, are included to the application. These data are 1ust e-ante. Cied
!oney Approach is used as a base in this study.
/n this study, along the application of cost management through the product life cycle, firstly
items that would be a part of cost element in production would be increased by the inflation
rate. Then items which were increased by the inflation rate would be discounted by the net
present value. At the last stage, unit cost, sale price, and cost amount through the life cycle of
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the product would be calculated and afterwards the statement of income would be drawn
according to the cost management of product life cycle.
*a3le 2 : >sti$ated Cost 7ata of ;ew 7ru1 'roduction in 2012
C?S*S (@)
T8TAL
1!'re %roduction Costs
#roduct #lanning and .esign "oncept "osts
0++.+++
#roduct .esign and .evelopment "osts
9++.+++
@esearch and .evelopment "osts (++.+++
T8TAL 1!200!000
2!'roduction Costs 2!000!000
3!+fter Sales Costs
#harmacists- .rug 8ffices "osts of
.istribution
B+.+++
!arketing "osts 7++.+++
5arranty "osts =+.+++
Advertisement- #resentation "osts 0+.+++
T8TAL <00!000
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*a3le 3 >n&ance$ent of 'redicted Costs2 of *&e ;ew 'roduct +ccordin1 to *&e
Inflation Coefficient Rate and 7iscount to *&e Base Aear

Costs 2012
Inflation
+dBust$ent
Coefficient Costs
@
7iscount
8actor
C12
*?*+(
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#roduct #lanning and
.esign "oncept "osts
0++.+++(,+7 06(.+++ +,B)6) *97.0B(
#roduct .esign and
.evelopment "osts
9++.+++(,+7 9(6.+++ +,B)6) 7*0.B0=
@esearch and .evelopment
"osts
(++.+++(,+7 (+7.+++ +,B)6) )(.)*)
*a3le 5! >n&ance$ent of 'redicted Costs2 of *&e ;ew 'roduct +ccordin1 to *&e
Inflation Coefficient Rate in *&e +%%lication 'eriod!
Cost9Aears 2012 2013 2015 201< 201=
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"oefficient
Application 6.+++.+++
Inflation Coefficient (,+7 (,+* (,+) (,(6 (,(=
"ost After /nflation
"oefficient
Application 6.+*+.+++ 6.(6+.+++ 6.(B+.+++ 6.69+.+++ 6.7++.+++
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"oefficient
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Application 06.(++ 09.6++ 0*.7++ 0B.9++ B+.=++
*a3le <! >n&anced 'redicted Costs 3) t&e Inflation Coefficient Rate in t&e +%%lication
'eriod 7iscountin1 in t&e Base Aear!

Costs +fter
Inflation
Coefficient
+%%lication
@
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Inflation
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+%%lied
>sti$ated
Costs
(2012 Base
Aear)
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6.(6+.+++ +,0)06 (.*)+.+*9
6.(B+.+++ +,0((B (.==(.069
6.69+.+++ +,*7== (.967.=6+
6.7++.+++ +,=*09 (.7+=.+6+
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B9.B++ +,0)06 *0.*+7
B0.6++ +,0((B *6.+*)
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77*.+++ +,*7== 6(7.=6B
79=.+++ +,=*09 ()=.0=7
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=(.=++ +,B)6) 9=.)B9
=7.+++ +,0)06 96.6=6
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06.(++ +,B)6) *9.70B
09.6++ +,0)06 =).(=6
0*.7++ +,0((B =9.7(+
0B.9++ +,*7== 9).B67
B+.=++ +,=*09 9=.*0*
*a3le =! Cost of *&e ;ew 'roduct (ife C)cle *&rou1& *&e Aears!
Cost9Aear 2012 2013 2015 201< 201= *?*+(
#roduct #lanning and
.esign "oncept "osts *97.0B( *97.0B(
#roduct .esign and
.evelopment "osts
7*0.B0= 7*0.B0=
@esearch and .evelopment
"osts )(.)*) )(.)*)
#roduction "osts
(.B7).70
9
(.*)+.+*
9
(.==(.06
9
(.967.=6
+
(.7+=.+6
+
0.B+).0+
6
#harmacists- .rug 8ffices
.istribution costs 07.=0= *0.*+7 *6.+*) =*.)9( =6.6+( 7(6.7BB
!arketing "osts 60=.)+* 6=7.=(+ 676.0=) 6(7.=6B ()=.0=7
(.(0(.9=
=
5arranty "osts 9=.)B9 96.6=6 7B.0)7 7=.=BB 76.*6* ()=.697
Advertisement-
#resentation "osts *9.70B =).(=6 =9.7(+ 9).B67 9=.*0* 607.79+
*?*+(
7.9+6.B9
6
6.((6.=B
+
(.)7).*=
=
(.00).9+
+
(.*7(.60
=
).0*6.(6
B
35
Review
2012;1(1): 20-3! "u#u S
*a3le F! Calculation of ,nit Costs 3) ,sin1 Bot& t&e *raditional Cost S)ste$ and *&e
Cost ?f *&e ;ew 'roduct (ife C)cle S)ste$
Cost9Aears 2012 2013 2015 201< 201=
6
i
t
&

*
&
e

+
%
%
l
i
c
a
t
i
o
n

'
r
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#roduct Life "ycle
"ost
7.9+6.B96 6.((6.=B+ (.)7).*== (.00).9++ (.*7(.60=
Corecast #roduction
8utput
(++.+++ (6+.+++ (9+.+++ (*+.+++ (0+.+++
#roduct Life "ycle
,nit "ost
79,+7 (0,* (7,B= ((,(6 ),*
6
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e

+
%
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#roduction "ost (.B7).709 (.*)+.+*9 (.==(.069 (.967.=6+ (.7+=.+6+
Corecast #roduction
8utput
(++.+++ (6+.+++ (9+.+++ (*+.+++ (0+.+++
#roduct ,nit "ost
(B,7) (9,+B ((,+B B,) 0,*B
*a3le ! >n&ance$ent of t&e 'redicted Sales Revenue of *&e ;ew 'roduct +ccordin1 to
*&e Inflation Coefficient Rate and 7iscount to t&e Base Aear!
Sales Revenue
9Aears
2012 2013 2015 201< 201= *?*+(
B
e
f
o
r
e

I
n
f
l
a
t
i
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C
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i
$
a
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S
a
l
e
s

R
e
v
e
n
u
e
=.+++.+++
36
Review
2012;1(1): 20-3! "u#u S
I
n
f
l
a
t
i
o
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C
o
e
f
f
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n
t
(,+7 (,+* (,+) (,(6 (,(=
+
f
t
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r

I
n
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=.(=+.+++ =.7++.+++ =.9=+.+++ =.*++.+++ =.0=+.+++
7
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C
1
2
+,B)6) +,0)06 +,0((B +,*7== +,=*09
I
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i
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n

C
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(
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)
9.=)B.97= 9.66=.(*+ 7.B0).7(+ 7.==B.B++ 7.6*6.==+ ().=69.6==
G '0+R4+C>,*IC+( 4+;,8+C*,RI;H B,SI;>SS I;C! I;C?4>
S*+*>4>;* ,;7>R 'R>S>;* /+(,>S ?8 +CC?,;* B>*6>>;
2012-201=
Sales 1:!<25!2<<
'roduction Costs !:13!32=
-'roduction Cost 0.B+).0+6
-'re%roduction Cost (.(+7.*69
Hross 4ar1in 10!=10!:2:
37
Review
2012;1(1): 20-3! "u#u S
+fter Sales Costs 1!:<2!52=
-'&ar$acists- 7ru1 ?ffices
7(6.7BB 7istri3ution Costs
-4arEetin1 Costs (.(0(.9==
-6arrant) Costs ()=.697
-+dvertise$ent- 'resentation Costs 607.79+

;et 'rofit !=<!<03

'rofita3ilit) Ratio 99>
*a3le :! 7istri3ution of t&e Costs 6&ic& are ?ccured in t&e *otal 'roduct (ife C)cle
'eriod
7R,H 'R?7,C* (I8> CAC(> *?*+( C?S*
C?S*S +4?,;*
*&e S&are of *otal
C
're%roduction Cost (.(+7.*69 (+
'roduction Cost 0.B+).0+6 06
+fter Sales Costs (.)=6.96* (B
'roduct (ife C)cle *otal Cost (+.B*=.0=6 (++
*&e results of t&is a%%lication can 3e su$$ari#ed as follows ;
As it can be seen from the table, cost structure of the pharmaceutical firm M all through the
product life cycle of the new product, is like that ; > 06 of total cost is production cost and >
6B of total cost is composed of before production and after sale costs. /f it were analy%ed by
the Traditional "ost -ystem, only the cost of production would have been focused. /n that
case, before production and after sale costs were going to be ignored and cost reduction would
be 1ust counted in the production cost. /n conclusion, cost of product life cycle gives
dependable results rather than the traditional cost system.
The other important conclusion can be drawn from this study is that unit cost. ,nit cost which
is calculated by the Traditional "ost -ystem means the unit production cost. /f a
38
Review
2012;1(1): 20-3! "u#u S
pharmaceutical firm ignored the other cost units which would be occurred through the product
life cycle period then the financial statements of the firm wouldnt reflect the realities. The
new technological developments lower the production costs but raises the non-production
costs. @ecent studies elucidate that > )+ of the total costs of product consists of pre-
production and after production costs. ?y analy%ing the Get #resent Halue of the #ro1ect
which is greater than %ero, it can be said that this pro1ect is reali%able one.
#roducts real added value for the firm can be drawn from the income statement which inludes
all the costs of the product through its life cycle. ?y income statement, a pharmaceutical firm
can reali%e if the product bears the costs or not. As the income statement is made up within
the frame of net present value, relevant items present values are analy%ed as the sum of their
present values form 6+(6 to 6+(*.

/n fact, income statements which are drawn by periods in traditional accounting system does
not indicate the real added value of the product to the firm. #eriodical income statements
reflect 1ust the relevant periods income and ependiture and this causes the handicap of
evaluation all income and ependiture of the product all through its life cycle as a whole. /n
that point, to attain the profitability ratio that the firm request, the question of which cost
components should be saved, plays an important role in the analy%e.
Conclusion
/ncreasing competition and globali%ation force the firms to take notice of their rivals. /n these
competitive environment, firms should take notice of not only their production cost and but
also pre-production and after production costs. Gowadays, policy of production has been
changed and customer oriented production has become prominent. "ustomers play an
important role in the production period of the firms.
/n conclusion, policy of the cost oriented sales has been changed. Gowadays, in this
increasing competitive environment, the viewpoint of the production technologies changes
day by day within the development of information technology. Eecutives of the
#harmaceutical firms are obliged to focus on all the production costs instead of significant
39
Review
2012;1(1): 20-3! "u#u S
part of the production process according to cost of the product life cycle period. 5ithin the
frame of #roduct Life "ycle "ost -ystem, not only the cost of production but also the other
costs of non-production process. ?y this means, #harmaceutical firms can obtain savings from
the costs in the production process.
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