Strategic Accounting Essay Example | Topics and Well Written Essays - 1500 words

Strategic Accounting - Essay Example 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from the time of initial research and development to the time when sales and support of the product to the customers is withdrawn.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 Withdrawal Stage - the product is withdrawn from the market It is also vitally important that the managers gather all the required information at the different stages of the life cycle and the life cycle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