What does a life cycle cost?

Life cycle costs (LCC) are also known as Cradle-to-Grave Costing. The purpose of this type of accounting is to provide a complete record of all costs associated with the product or service. This type of cost is common in the production, development of products, construction and software companies.

In order to properly monitor the cost of life cycle, the accounting system must be configured or set to manage this type of accounting in advance. In most accounting systems, there is a standard set of main book accounts that are used to monitor expenditure and income. The cost of life cycle requires the creation of other, non -standard accounts of the main book. The purpose of these accounts is to group similar costs together for accurate reports without inflating the reporting of the financial statements.

Many companies combine accounting for life cycle with standard cost accounting. In this accounting method, cost centers and profile centers are used to monitorincredible with a particular product or category. For example, if a cosmetic company develops a new skin cream, it can create a cost center for monitoring all costs related to the original development in a unique cost center.

If the product is successful and moves from development to production, at this stage of the process can create another cost center for tracking activity. Once an item is available for sale and distribution, another cost center can be used to monitor this activity. This method has the advantage of tracking costs at different stages and helps employees to focus on current transactions.

In order to unify these different cost centers to provide a holistic view of the cost of the product life cycle, the company can use either cost groups or accounts led. Neither method is OK if it is consistently used for transactions. If theEvaluate to change its methodology, the entire project may be required to transfer previous transactions to the new system and ensure that all values ​​are reconciled.

The accounting system is usually adapted to provide a number of reports to monitor the cost of life cycle. These reports usually cover multi -year periods of time because the process of creating a new product will bring them to the market and then is quite long. Check the standard accounting messages that are provided to your accounting system, and then create specifications of what is needed to meet your needs.