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Total cost of ownership (TCO) is a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or service. It is a management accounting concept that can be used in full cost accounting or even ecological economics where it includes social costs .
Whole-life cost is often referred to as "total cost of ownership (TCO)" when applied to IT hardware and software acquisitions. Use of the term "TCO" appears to have been popularised by Gartner Group in 1987 [ 5 ] but its roots are considerably older, dating at least to the first quarter of the twentieth century.
The term differs slightly from Total cost of ownership analysis (TCOA). LCCA determines the most cost-effective option to purchase, run, sustain or dispose of an object or process, and TCOA is used by managers or buyers to analyze and determine the direct and indirect cost of an item. [1] The term is used in the study of Industrial ecology (IE ...
TVO differs from total cost of ownership (TCO) in that TVO considers the benefits of alternative investments. It is a comparative measurement that evaluates the TCO and any additional benefits, such as the mobility of laptops when compared to desktop computers.
While many companies perform a total cost of ownership (TCO) analysis, TBO is considered to be as important as TCO. TCO aims to minimize the total cost of the business, whereas TBO targets the maximum value of the project. Enterprise decision-makers often use both methods to estimate the actual value of an investment or strategic venture. [6]
Choosing a pricing approach to assist a business in achieving a profit is a difficult decision, however, can be made easier when considering their goals and objectives. The cost-based approach is useful as it is easy to calculate and can guarantee that the firm will cover costs of production. [11]
Total cost of acquisition (TCA) is a managerial accounting concept that includes all the costs associated with buying goods, services, or assets. [ 1 ] Generally, it is the net price plus other costs needed to purchase the item and get it to the point of use.
Estimating the cost savings required to justify the purchase of new equipment. [13] Determining the cost of continuing with existing equipment. [14] Where an asset undergoes a major overhaul, and the cost is not fully reflected in salvage values, to calculate the optimum life (i.e., lowest EAC) of holding on to the asset. [15]