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Strategic Accounting

One of the major developments in the area of managerial accounting is the product life cycle costing which has gained serious recognition during recent periods to meet the challenges of changes in the production systems and procedures.
Product life-cycle costing being the new development in the management accounting system has been defined as "a new area of reporting in cost management systems which is the accumulation of costs for activities that occur over the entire life cycle of product"(Hilton, 1994, p.230). Product life cycle examines the life of the product from its development stage to the stage till the removal of the product from the usage. According to Horngren & Foster (1991), product life-cycle covers the life of the product from the time of initial research and development to the time when sales and support of the product to the customers is withdrawn.
Burstein (1988) observes that the life cycle costing becomes more and more crucial and important in the light of rapid changes in technology and the shortening of the product life cycle. There is a sharp distinction between the product's life cycle costs and the whole life cycle costs. Life cycle costs cover all the costs that the manufacturer will have to incur and whole life cycle cost includes the costs at the hands of the consumer like installation, operation, maintenance, revitalization and disposal (Shields & Young 1991.)
Adamany & Gonsalves (1994) have identified the following seven stages in the life cycle of a product:
1. Analysis Stage - involving a critical assessment of the concept and the effects of investing on the concept
2. Start Up Stage - comprising of prototyping, dedication of the manufacturing facilities and practical assessment of the effects of the investment
3. Entry Stage - where the entry into the market with a new product or service is planned
4. Growth Stage - during which the firm receives back the returns on investment as potential sales revenues
5. Maturity Stage - at which the firm harvests the profit from the product or service
6. Decline Stage - signifying the tampering down of the sales which necessitates moving to the withdrawal stage or revitalizing the product
7. Withdrawal Stage - the product is withdrawn from the market
It is also vitally important that the managers gather all the required information at the different stages of the life cycle and the life cycle concept introduces an integrated approach to planning and budgeting.
Mapping of Key Information Requirements
Life Cycle Phase
Time
Customer Requirement
Satisfaction
Target
Pricing
Resource
Requirement

Continuous
Improvements
Cash Flow
Analysis

Critical
Critical
Critical
Critical
Critical
Start up
Critical

Critical
Critical
Critical
Critical
Entry
Critical
Critical
Critical
Critical

Critical
Growth
Critical
Critical
Critical
Critical
Critical
Critical
Maturity

Critical
Critical

Critical
Critical
Decline


Critical


Critical
Withdrawal





Critical

Source: (Adamany & Gonsalves 1994)

Actions under Life Cycle Costing for Generating Revenue and Reducing Costs

Revenue Generation
Cost Reduction
Product Improvement:
New Processes
Features
Cumulative Volume
Performance
Experience ...Show more

Summary

The present day business environment is so complex and competitive that increased use of automated production processes and advanced technological equipments are the order of the day. The management of the firms has to take into account the rapid technological changes the market undergoes to remain competitive…
Author : lrobel
Strategic Accounting essay example
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