Comparison of the Product Life Cycle Cost System with the Traditional Cost System and its Application on a Pharmaceutical Company

Abstract

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 Labor-intensive production technology has been replaced by computer-controlled production.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, flexible 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. Moreover, 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 costeffectiveness 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.