Question

Describe the product life cycle and discuss how unit level costs, batch level costs, product level costs and facility level costs behave in relation to the product life cycle.

Answer 1

Product life cycle helps in planning the expenses, costs, revenues accruing to the firm during life cycle of a product. Life cycle of a product is divided into four stages namely:-

1. Introductory phase: - this is the initial stage of business. Company launches its product newly at this stage

2. Growth: - at this stage business tries to attain growth in its business as its product so introduced tries to gain some recognition in business.

3. Maturity: - Business is at its peak at this stage. The product so introduced is fully recognized till this stage.

4. Decline: - At this stage the business of the company starts declining. Now company has many competitors and so product is substituted and business starts declining.

Unit level cost ;Unit level cost are highest in the introductory phase and then it start to fall in the growth phase due to the purchase of material in large quantities   which result in lowering the cost of production. In the maturity phase the unit level cost remains stable and n decline phase number of units produced are fewer and secondly the unit cost remain low in this phase due to the liquidation of existing inventories.

Batch level cost; in the batch level costs the pattern remains the same as that of unit level except in the maturity phase where batch level cost increases due to the product differentiation, setting up numbers, increase in purchase orders and inspection cost .In the decline stage batch level cost also start to fall as in the case of unit level cost.

Product Level; It is highest in the introductory phase and generally fall throughout the rest of the life cycle.

Facility Level; this type of cost is not affected unless the product requires a new facility or equipment. If the product requires new equipment then this cost is highest in the introductory phase.