Objectives Of Cost Accounting

Cost accounting is a type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. (WebFinance, 2016)

Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance. (WebFinance, 2016)

The main objective of cost accounting is to calculate the cost per unit of a product or service. Its important for us to know the cost per unit for the following reasons:

➢ To know the cost

➢ To control

➢ To take the decision whether to stop or continue the product or service.

There are three elements

The following are different cost accounting approaches:

• Standard cost accounting

• Lean accounting

• Resource consumption accounting

• Throughput accounting

• Life cycle costing

• Environmental accounting

• Target costing

Cost Accounting is a formal system of accounting for costs in the books of accounts by means of which costs of products and services are ascertained and controlled; and in this paper, I have chosen life cycle costing and target costing. Where I will be looking in depth of both Life cycle costing and target costing; the steps and benefits of both life cycle and target costing.

Life-Cycle Costing

A product life-cycle means the total time frame within which the product is actively alive in the market. It has different stages in its life-cycle which are:

• Launch Stage

• Growth Stage

• Maturity Stage

• Decline Stage

This can be illustrated as

This approach allows business organizations to measure the real profit of each product. It can understand the performance of each product and improve its performance.

The costs involved in making a product, and the sales revenues generated, are likely to be different at different stages in the life of a product. For example, during the initial development of the product the costs are likely to be high and the revenue minimal – i.e. the product is likely to be loss-making.

For example if we were to take a mobile, the life-cycle is very short. For some it is about few months while for others it could be more than a year. It can be seen that from the time it is launched how strong the product grows, mature and then begins to decline after awhile as new products start to emerge.

However if a product like Coca Cola is taken it has been in the market for more than a century but still it has not declined. A product like that has grown and been in the matured part of the life-cycle.

Life-cycle costing identifies the phases in the life-cycle and attempts to accumulate the costs over the entire life of the product; making it the most straightforward evaluation approach of the economy and makes cost effective calculations for construction related