Page 277 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes The ability to report the amount of product value that is shared with other product families with
respect to production items and purchased items provides useful information about the amount
of a product’s items that can be recycled.

Did u know? Recycling levels of items explain how modularisation has been implemented
or whether there is a platform concept for the product. This is a way to develop higher
volumes of the items that are used by the company.

14.6.2 Benefits of Kaizen Costing

Kaizen Costing creates a dialog and respect for those whose task is to cut costs, which can often
be viewed as reactionary and not value adding. The investment estimate is now available since
the basis for making the estimate is determined in advance. Therefore it’s simply a matter of
entering the relevant values, which can be done by the implementing group. Competence
development is long-term and is directed toward events that occur earlier in the process. The
result generates the ability to survive in the short term.
Within a given framework, the investment estimate is distributed to those who are working
with the issues so that they can focus at an earlier stage on the challenges that bear financial fruit.
This also provides a solution to the problem of rewarding the group working with cost
rationalisation. Normally, the question is who contributed to what? The operator develops the
idea, the designer implements the changes, and the buyers negotiate the new purchase price.
Who has contributed to what? Who should get a bonus? With Kaizen Costing, every activity
will be supported by a work team that shares the result.
Self Assessment

Fill in the blanks:
10. …………………… Costing creates a dialog and respect for those whose task is to cut costs,
which can often be viewed as reactionary and not value adding.

11. Kaizen Costing can be a suitable method for achieving …………………….
14.7 Life Cycle Costing

Life cycle costing as its name implies, costs the cost object i.e. product, project, etc. over its
projected life. It is used to describe a system that tracks and accumulates the costs and revenues
and attributes to cost object from its inception to its abandonment. The profitability of any given
object can, therefore, be determined at the end of its economic life.

Life cycle costing is different from traditional cost accounting system which report cost object
profitability on a calendar basis i.e. monthly, quarterly and annually. In contrast, life cycle
costing involves tracing cost and revenue on a product to product basis over several calendar
periods. Costs and revenue can be analysed by time period, but the emphasis is on cost revenue
accumulation over the entire life cycle of each product.

14.7.1 Product Life Cycle

Each product has a life cycle, which varies from few months to several years. For example, in
case of camera, photocopying machines, etc. the life is more than 100 years whereas in the case
of black and white TV/VCR, it is for few years only. Product life cycle is thus a pattern of

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