Content area
Full Text
1. Introduction
Since the 1990s, competitive pressures have increased the importance of modern cost-management tools (Himme, 2009). Life cycle costing (LCC) is a modern cost-management tool that is well known in practice (Franz and Kajüter, 2002; Schiller et al., 2007)[1]. LCC is distinctive because it focuses on a long-term, life-cycle perspective in cost accounting practices and counteracts management tendencies to focus on the short term (Greenwood, 2002; Guilding et al., 2000). More precisely, LCC captures costs that occur not only during the manufacturing stage but also in earlier and/or later stages of a product’s life cycle. Because these costs are relevant to decisions that are made from an ex ante perspective, firms are well advised to consider them at an early stage. Guarantee and warranty costs are appropriate examples because although such costs are incurred in later stages, they must be incorporated into the sales price (Frees and Nam, 1988).
Although conceptual advantages of LCC are often appealing and important for numerous firms, prior studies have generally focused on other cost-management tools (e.g. target costing) and lack a comprehensive empirical analysis of the adoption and benefits of LCC (Himme, 2009). However, it is important to understand both the conditions and the benefits of adopting LCC because this information could provide guidance for management accountants who are considering the implementation of LCC. In addition, this topic broadens our theoretical knowledge of the use of cost-management instruments.
Therefore, this study examines the conditions for adopting LCC. We investigate the relevance of the cost structure to the extent of LCC adoption and consider R&D costs, guarantee and warranty costs, voluntary upfront and follow-up costs for ecological sustainability, along with the amount of precursors and intermediates that have been purchased. We expect R&D costs, guarantee and warranty costs and voluntary upfront and follow-up costs for ecological sustainability to be positively associated with the extent of LCC adoption because these costs are generated during the pre- or the after-market phases of a product or service. In contrast, we expect to find a negative association between the amount of precursors and intermediates that have been purchased and the extent of LCC adoption because purchasing a larger number of precursors and intermediates reduces the relevance of costs that are incurred...