Question

For Yum Brands! Inc, describe the Product Cost Life Cycle. Does the company employ target costing? If so, how does the company manage costs to reach the target level?

Answer 1

• Product Life Cycle cost system is , tracks and accumulates the actual costs and revenues attributable to cost object(product) from its inception to its abandonment.
• it aims at cost ascertainment of a product, project, etc over its projected life
• product life cycle is a pattern of expenditure, sales level, revenue and profits over the period from new idea generation to the deletion of product from product range
• the 4 identifiable phases in the product life cycle are 1) introduction 2)growth 3)maturity 4) saturation/decline/ replacement
• benefits of product life cycle costing system

1. Cost and revenues can be analyzed by time periods
2. focuses on recognizing both production and non production costs
3. helps to arrive optimal price decision
4. life cycle costing with target costing principles , facilitates scope for cost reduction at the design stage itself

TARGET COSTING

A structured approach in determining the cost at which a proposed product with specified functionality and quality must be produced , to generate a desired level of profitability at its anticipated selling price.

advantages of target costing

1. Enables firm to achieve competitive advantage over other firms in the industry
2. it reinforces top-to bottom commitment to process and product innovation and is aimed at identifying issues to be resolved
3. helps to create company's competitive future with market-driven management, for designing and manufacturing products that meet the price required for market success

• target costing principles with life cycle costing , facilitates scope for cost reduction at the design stage itself, should implement target costing

to manage cost to target level

• introduce budgetary control
• implement automation
• implement proper production planing and control
• proper purchase scheduling and inventory control
• work and procedure study
• design improvement
• quality measurement and research