Total Ownership Costs

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Total ownership costs Introduction Total ownership cost is a financial estimate whose function is to assist customers as well as organization managers to determine both direct and indirect costs of a system or product (Contract management. 2006). Total ownership costs, as a management accounting concept it is applicable in the full cost accounting. In addition, it is applicable in ecological economics where in includes social costs among other costs. When it comes to manufacturing, total ownership costs goes beyond the initial production cycle time as well as costs to make parts. Total ownership costs include various costs of doing business items such as opportunity costs, ship and re-ship. Moreover, it considers incentives and other variables developed for alternative approaches such as tax credit, expedited delivery, supplier visits and common language among others. Total ownership costs usually provide cost basis, which helps in determining the total economic value of a certain investment. Examples include economic value added, rapid economic justification, return on investment and internal rate of return. Analysis of the total cost of ownership includes operating costs as well as total costs of acquisition (Contract management. 2006). This analysis helps in gauging the viability of any capital investment in an organization. An organization may use the analysis as a comparison tool for its products. Total ownership costs relate directly to the organization's
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