Islamic Accounting
Life Cycle Costing
Life-cycle cost (LCC) or also known as whole-life cost refers to the total cost of ownership over the life of a product. LCC commonly referred to as "cradle to grave" or "womb to tomb" costs. The costs considered include the financial cost which is relatively simple to calculate and also the environmental and social costs which are more difficult to quantify and assign numerical values.
According to Business Dictionary, life cycle costing is a procurement and production costing technique that considers all life cycle costs. In procurement, it aims to determine the lowest cost of ownership of a fixed asset during the asset 's economic life. In manufacturing, it aims to estimate not only the production costs but also how much revenue a product will generate and what expenses will be incurred at each stage of the value chain during the product 's estimated life cycle duration.
Life cycle costing estimates and accumulates costs over a products entire life cycle in order to determine whether the profits earned during the manufacturing phase will cover the costs incurred during the pre-and post-manufacturing stages. The objective is to determine whether costs incurred at different stages of development, manufacturing and marketing of the product will be recovered by revenue to be generated by the product over its life cycle. Particularly it helps to evaluate the viability of the product, decides on pricing of the product at different stages of product life cycle and often helps to estimate the value of the product to its user. Life cycle costing becomes an important tool for cost management when it is used in conjunction with target costing. This can be achieved by effectively exercised during the planning and design stage and not at the manufacturing stage when the product design and processes have already been determined and costs have been committed.
Identifying the costs incurred during the different stages of a product’s life cycle provides an
Life-cycle cost (LCC) or also known as whole-life cost refers to the total cost of ownership over the life of a product. LCC commonly referred to as "cradle to grave" or "womb to tomb" costs. The costs considered include the financial cost which is relatively simple to calculate and also the environmental and social costs which are more difficult to quantify and assign numerical values.
According to Business Dictionary, life cycle costing is a procurement and production costing technique that considers all life cycle costs. In procurement, it aims to determine the lowest cost of ownership of a fixed asset during the asset 's economic life. In manufacturing, it aims to estimate not only the production costs but also how much revenue a product will generate and what expenses will be incurred at each stage of the value chain during the product 's estimated life cycle duration.
Life cycle costing estimates and accumulates costs over a products entire life cycle in order to determine whether the profits earned during the manufacturing phase will cover the costs incurred during the pre-and post-manufacturing stages. The objective is to determine whether costs incurred at different stages of development, manufacturing and marketing of the product will be recovered by revenue to be generated by the product over its life cycle. Particularly it helps to evaluate the viability of the product, decides on pricing of the product at different stages of product life cycle and often helps to estimate the value of the product to its user. Life cycle costing becomes an important tool for cost management when it is used in conjunction with target costing. This can be achieved by effectively exercised during the planning and design stage and not at the manufacturing stage when the product design and processes have already been determined and costs have been committed.
Identifying the costs incurred during the different stages of a product’s life cycle provides an
References: http://accounting4management.com/target_costing_pricing_products_and_services.htm http://www.targetachievementllc.com/content/pages/what-is-target-costing http://www.fm-magazine.com/your-questions/you-asked/what-difference-between-%E2%80%98life-cycle-costing%E2%80%99-and-%E2%80%98target-costing%E2%80%99 http://www.ehow.com/info_8403796_benefits-target-costing.html http://www.transtutors.com/homework-help/cost-management/target-costing/advantages.aspx http://www.businessdictionary.com/definition/cost-reduction.html http://en.wikipedia.org/wiki/Target_costing