Scribd
Upload
34 views11 pages

9 - Alternative Cost Accounting Principles

The document discusses inventory management and product life cycles. It aims to minimize a firm's investment in inventory while meeting customer demand. It also describes the typical stages in a product's life cycle from development through decline, noting characteristics and costs at each phase. Finally, it outlines the traditional approach to setting product costs versus target costing, which sets cost targets early in the design process.

Uploaded by

mpula456
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
34 views11 pages

9 - Alternative Cost Accounting Principles

The document discusses inventory management and product life cycles. It aims to minimize a firm's investment in inventory while meeting customer demand. It also describes the typical stages in a product's life cycle from development through decline, noting characteristics and costs at each phase. Finally, it outlines the traditional approach to setting product costs versus target costing, which sets cost targets early in the design process.

Uploaded by

mpula456
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 11

INVENTORY AND PRODUCTION

MANAGEMENT
Inventory Items

◼ Inventory is often a firm’s largest investment


◼ Merchandise for resale
◼ Manufacturing raw materials, work-in-process and
finished goods
◼ Firms today should minimize inventory while
meeting customer demands
◼ Managing inventory—The goal is to minimize the
company’s monetary commitment to inventory
without negatively impacting product availability
Product Life Cycles: Development

◼ Development (R&D) costs expensed as


incurred in financial accounting
◼ Decisions made during the development
stage represent 80% to 90% of product’s total
life-cycle costs

S
Development A
Stage L
E
S
TIME
Product Life Cycles
Product Life Cycles: Introduction

◼ Substantial costs including engineering


changes, market research, advertising,
and promotion
◼ Sales price matches similar or
substitute goods
S
◼ Sales low A
L
E
S
Introduction TIME
Stage
Product Life Cycles: Growth

◼ Increased sales
◼ Quality may improve
Growth
◼ Prices stable Stage

S
A
L
E
S
TIME
Product Life Cycles: Maturity

◼ Sales stabilize or decline slowly


◼ Firms compete on selling price
Maturity
◼ Costs at lowest level Stage

S
A
L
E
S
TIME
Product Life Cycles: Decline

◼ Waning sales
◼ Dramatic price cuts
Decline
◼ Cost per unit increases as fixed
Stage
costs are spread over fewer units

S
A
L
E
S
TIME
Target Costing After
product
design
◼ Traditional approach ◼ Target cost approach
❑ 1st: Product design ❑ 1st: Product design
❑ 2nd: Compute cost ❑ 2nd: Set sales price
❑ 3rd: Set sales price ❑ 3rd: Compute target cost
❑ 4th: Profit or loss ❑ 4th: Cost management and
continuous improvement

After
product
design
Target Costing
Target Cost Implications

◼ If target cost too high


❑ Change product design or production
process
◼ Use cost tables to find impact on product costs
of different inputs, processes, and
specifications
❑ Accept less-than-desired profit margin
❑ Do not enter the market

You might also like