The document discusses life cycle costing and target costing. Life cycle costing considers all costs from inception to abandonment of a product, including R&D, marketing, customer service, etc. Target costing determines the target price customers will pay, target profit, and derives the target cost of production. It reinforces management commitment to innovation and customer satisfaction while helping maintain a competitive advantage. Potential downsides include increased costs to meet all customer needs, delays from alternative designs, and internal conflicts over cost cutting.

2.  In case of traditional costing system, the cost of the
product is usually computed on the basis of visible
costs which primarily consist of manufacturing costs viz.
materials, labour & overheads incurred for the product
during a particular period .
 Invisible costs such as research & development costs,
after service costs etc are usually ignored .
 Life cycle costing is based on this basic premise that for
decision making all costs whether capital or revenue
,whether upstream(R&D) or down stream (customer
service )incurred during all phases of the product life
cycle are relevant.

3.  The product’s life cycle starts from the inception of
the product by the manufacturer to abandonment
of the product by the customer.
 Life cycle of a product differs from product to
product
 Example-in case of an automobile it may 10 years,
while in case of goods it may be only a year.

4. 1. Research & development costs
2. Product design costs
3. Manufacturing costs
4. Marketing costs
5. Distribution costs
6. Customer service costs
It means it includes cost from d.o.b to d.o.d

5. 1. Pricing decision –it provides information to mgmt. for
pricing.
2. Focuses on both visible & invisible costs –full costs
associated with each product.
3. Overall view-A cost statement prepared as per life cycle
costing gives information regarding all costs associated
with the products over its life span .hence,the mgmt
can take an overall view.
4. Facilitates capital budgeting decision- its long term
decision .since LCC considers both long term or short
term projects.so it helps in better appraisal of project.

6.  Meaning- the concept of target costing had its
origin in japan in 1960’s as a result of difficult
market conditons the japanese co.’s were having a
tough time due to proliferation of consumer &
industrial products of western firms in the asian
mkts.so they decided to launch new products after
knowing the needs of consumer to put forward
western firms.

7.  Target price-it is the estimated price of the product
or service which potential consumer will be willing
to pay.
 Target profit-it is the amount of the profit which the
firm will like to make from a particular product.
 Target cost= Target price –Target profit

8. 1. Identifying the product that satisfies the needs of
the potential customers
2. Reaction of the competitors
3. Detemination of target price
4. Detemination of target operating income per unit
5. Deriving target cost per unit

9.  Example-ABC ltd is having total cost or gross cost Rs
150000,they produce a particular product x .now
They produce 2000 units whose selling price is rs
80.they have target rate of profit is 10%.

10.  Total sales 2000* 80=160,000
 Target profit 10% of 160000=16000
 Tp per unit=16000/2000=8
 So,target cost per unit =t.price-t.profit
80-8=72
Total cost=150000
T.C perunit 150000/2000=75

11.  It reinforces at all levels of management
,commitment to produce or provide innovative
products or services.
 It gives maximum satifaction to customers
 It helps the organisation to create or maintain the
competitive feature through the mkt.

12.  In order to meet the needs of all customers the cost
of the product goes on increasing .
 Production is being delayed on account alternative
designs.
 Conflicts within the organisation may occur because
of cost cutting.