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In: Accounting

The following statements have been made about target costing and lifecycle costing. Target costing ensures that...

The following statements have been made about target costing and lifecycle costing.

  1. Target costing ensures that new product development costs are recovered in the target price for the product.
  2. Lifecycle costing is more useful for planning than control purposes.

Which of the above statements is/ are true?

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Expert Solution

Target costing is defined as 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.

Therefore target costing approach ensures that a product cost are tuned to make its production profitable as per the demand and expected sellinp price. Therefore it is a tool for profit management rather than a tool for cost reduction or cost management.

Therefore the statement that "Target costing ensures that new product development costs are recovered in the target price for the product" is False

Lifecycle costing aims at cost ascertainment of a product over its projected life through the various stages of product life cycle. It is a system which tracks and accumulated the actual costs and revenues attributable to cost objects and is therefore important in planning the production as well as analysing any deviation in the production costs and revenues.

Therefore the statement that "Lifecycle costing is more useful for planning than control purposes." is False

ekkarill92 answered 1 year ago
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