Creative Managers - Life Cycle Accounting/Costing - 59 Sunny Kumar (A), 119 Shilpa Goyal (B), 186 Zorawar Singh(C)

"Life Cycle Accounting/Costing"-
Introduction:

Life-cycle costing is a method of costing that looks at a product’s entire value chain from a cost perspective. Other type of costing generally looks only at the production process, where as life-cycle costing tracks and evaluates costing from the research and development phase of product’s life, through to the decline and eventual conclusion of a product’s life. Life-cycle costing also looks at product costs post-sale. Examples of this type of cost are warranties, customer service, marketing and distribution costs. Where most types of costing systems focus on cost control, life-cycle costing focuses on reducing cost throughout a product’s life.

59 sunny Kumar (A)

Discussion:

Life-cycle costing is most appropriate when a product is in the design or pre-design stages. This will allow management to gain the most benefit from the process, as opposed to attempting to use life-cycle costing after a product is already in market place. There are three broad purposes of life cycle costing.

1. Life cycle costing helps to develop a sense of the total costs associated with a product in order to identify whether the profits earned during the active, manufacturing, phase will cover the costs in the development and decommissioning phases.

2. Because of its comprehensive consideration of costs, life cycle costing will identify a product’s environmental cost consequences and will spur action to reduce or eliminate those costs.

3. Life cycle costing helps to identify the planning and decommissioning costs during the product and process design phase in order to control and manage costs in that phase.

186 Zorawar Singh(C)

Conclusion:

Life cycle costing is the process of estimating and accumulating costs over a product’s entire life. Life cycle costing is particularly important in environments in which there is large planning and development costs (for example, developing a new jetliner) or large product abandonment costs (for example, decommissioning a nuclear generating facility).

While many costing methods seem very similar, life cycle costing takes an entirely different view on product costing than other types of costing methods such as job-order and process costing. Finding the right product costing method is essential for a business to stay competitive in today’s cost-conscious world.

In general, life cycle costing provides a comprehensive accounting of a product’s costs, both manufacturing and environmental , from cradle to grave to help decision makers understand the cost consequences of making that product and to identify areas in which cost reduction efforts are both desirable and effective.

119 Shilpa Goyal (B)

References:

Accounting For Management And Information Technology-

C. Mohan Juneja

Rajesh Bagga

Wikipedia.org