...Accountant 12 March 2002 Implementation of Target Costing and the concerns Target costing is an approach developed by the Japanese companies. It is: “Target costing is the process to determine the maximum allowable cost for a particular new product and then developing the prototype that can be profitably manufactured and distributed for that maximum target cost figure.” Target cost for a particular product can be calculated by starting with the anticipated selling price/target price of the product and less the profit margin required or desired profit as follows: Anticipated selling price – desired profit = Target cost Target costing in fact, is a tool that can be used for managing the costs. Normally, the planners will make use of target costing during product and process design in order to reduce the future manufacturing costs of the product. Concerns about Target Costing: Studies on target costing carried out in Japan have shown that there are several problems that occur in the process of implementing the target costing system. This is true especially in the situation where the company only focuses on the issue of meeting the target cost and ignores the other elements of overall company goals. The problems are: In general, there will be a lot of parties involved in the process of target costing. Due to the reason that everyone is having their own ideas, therefore, conflicts will occur between those who are took part in target costing process. Sometimes the subcontractors/suppliers...
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...TABLE OF CONTENTS ACKNOWLEDGEMENT 2 INTRODUCTION 3 CONTENT 4 1.0 DEFINITION OF TARGET COSTING 4 2.0 THE PURPOSE OF TARGET COSTING 4 3.0 CHARACTERISTIC OF TARGET COSTING 4 4.0 PRIMARY PROCESS OF TARGET COSTING 5 5.0 LIFE CYCLE COSTING 6 6.0 COST REDUCTION EFFORT 6 7.0 ADVANTAGES OF TARGET COSTING 7 CONCLUSION 9 APPLICATION TO INDUSTRY 9 REFERENCES 10 ACKNOWLEDGEMENT In performing our assignment, we had to take the help and guideline of some respected person, who deserve our greatest gratitude. In the completion of this assignment give us much pleasure. We would to gratitude Dr. Rosiatimah Mohd Isafor giving a good guideline for the assignment throughout numerous consultations. We would also like to expend our deepest gratitude to all those who have directly or indirectly guided us in writing this assignment. Many people, especially our classmates and team members itself, have made valuable comment suggestions on this proposal which gave us an inspiration to improve our assignment. We thank all the people for their help directly and indirectly to complete our assignment. INTRODUCTION Organization might have a number of objectives such as customer satisfaction with the good quality of product that company produced, achieving a high level of market penetration, providing a good work environment to their employees and being able to achieve high revenue. Therefore, there is a number of strategic management accounting techniques that can be...
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...Running Head: PUBLIX CMT Contemporary Management Technique for Publix Target Costing Rationale Publix Super Markets, Inc. is a primarily Florida established grocery store chain which employees over 120,000. Currently, Publix serves over one million customers each day and is also one of the largest employee-owned businesses in the world. Moreover, the company is one of Florida’s leading supermarkets and has tailored to most cultural trends in the grocery industry-organic foods; health foods, natural foods, prepared meals, ethnic ingredients, etc. Publix grocery has benefited from great success in the industry and has expanded out of primary market, Florida. However, with the arrival of globalization impacting margins in almost every industry, the food retailing/supermarket industry has now joined the trend. International and domestic food retailers around the globe have started to internationalize at a brisk rate and open operations around the globe (Mujtaba & Franklin, 2007). The right product pricing is one of the most important matters concerning the growth of companies’ financial performance. Prices should be low enough to draw in customers; however, simultaneously high enough to cover all costs and anticipated profits. Research in the supermarket industry indicates that nine percent of customers leave and shop elsewhere because they think prices are too high. The supermarket business is becoming more and more concentrated as large regional chains such as...
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...INTRODUCTION OF TARGET COSTING Target costing is a system of profit planning and cost management. The required features and performance of the proposed product are established. Then target costing determines the life cycle cost at which the product must be produced, to generate the firm’s desired level of profit. Given the product’s anticipated selling price (Cooper and Slagmulder,1999, p.166). Note that target costing is not a method for product costing , it is a technique for cost management. It was devised in Japan, where it is used widely, particularly in automobile, electrical and equipment-manufacturing industries (Lorino, 1995). With the effect of globalization, it is gradually gaining acceptance in the Western world. EXAMPLE OF TARGET COSTING Let’s assume that the planned selling price of $250 and a planned cost, including upstream and downstream costs, of $200 per unit. The selling price was based on the plan cost per unit plus a planned profit markup of 25% of selling price. If the company had used target costing, the preparation of the life cycle budget and the planned level of profit might have been very different. Let’s say the market research indicated to ACDP that to sell 50 000 units the CD Super would have to be priced at $190. Given this information we can estimate the target cost for CD Super as: Target cost = target selling price – (target profit margin) = $190 – (0.25 X $190) = $142.5 THE TARGET COSTING PROCESS Early in the product planning stage...
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...TARGET COSTING FOR SUPPLY CHAIN MANAGEMENT Target Costing is a process to make sure that a product launched with particular functions, quality and price can be made at a cost that would generate a reasonable amount of profit. It is different from the other costing approaches as it is a part of the company’s product development and introduction process. Therefore target costing requires all the information regarding the company’s competitive, product and supply chain strategies. After getting this information, as the company shifts from product strategy phase and introduction process through product concept, all the target costing activities are performed. During the early stages of target costing, the company through the market research statistics, anticipates the price that the consumers are going to pay for their product, by taking its various functions, quality and the substitutes offered by the remaining firms. Depending on this price, the company deducts the profit margin in order to meet the demands of the stakeholders and also to invest for the research and development of new products. The target cost is the maximum allowable cost that the company should incur manufacturing, distributing, servicing and disposing the product. Target costing enables the company to put efforts in order to reach the requirements of the customers. It enables to meet or even to exceed the quality and functionality so that product competitiveness can be attained. Target costing cannot be used...
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... 6.Activity based costing/Target costing Mechanism for determining selling prices. It is a cost management tool. TATA tries to manufacture a car at Rs. 1 ,00,000. – is a typical example for target costing. 42. Stages of target costing 1. Determine the target price which customers will be prepared to pay for the product 2.Deduct a target profit margin fro the target price to determine the target cost 3. Estimate the actual cost of the product 4.If estimated actual cost exceeds the target cost , investigate ways of driving down the actual cost to the target cost 43. Target costing-Continues Customer oriented approach Used by Japanese copanies and recently adopted by Europe and the USA. Recently call canters are trying to adopt this as Indian currency strengthened. 44. Procedures: 1.Market research to find the customer’s perceived value-tear down analysis-examining the competitors’ products-dismantling of the competitor's product.use value engineering 2.How customers differentiate the product from the competitors 3.Target profit margin depends on planned return on investment and fix % of profits on sales 4.Decomposed into a target profit for each product. 5.Deduct the target profit from target price 6.Compare with the predicted actual cost. 7. If predicted cost>target cost then efforts are made to close the gap. 45. What is required? Team approach Team members include: 1.designers 2. engineers 3. Purchasing 4. manufacturing 5. marketing 6. management accounting...
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...Marginal costing and Absorption costing: the concept of marginal and absorption costing and its practical applications on business decisions. Cost Volume Profit Analysis: Relationship, impact on pricing, practical decision making strategies through CVP analysis Standard Costing and Variance analysis: concept and objectives of standard costing, advantages and limitations, variance analysis (Material, labour, overheads and sales variance), practical applications Budgeting and budgetary control mechanism Activity based costing, Responsibility Accounting Target costing Objective Objective of this course is to help student understand: 1. The essence of management accounting-effective use of the accounting information for planning, control and business decision making. 2. To use cost accounting as a managerial tool for business strategy and implementation. 3. To understand analyse the costing tools and their business application for enhancing revenue and profitability of a firm,. 4. To analyse various aspects of costing such as, marginal costing, absorption costing, allocation of costs, standard costing and variance analysis, activity based costing, target costing etc. 5. To understand the process of decision making, planning and budgeting in a business organisation. Pedagogy Lectures Discussions on case studies Term Projects and presentations Discussion and presentation on published research papers on related topics. Text book: Management Accounting: Paresh...
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...production needed by a company can be achieved by providing cost incurred relative to the prices in the market or the prices set for the objective achievements are actualized. There are several techniques put forwards by companies to ensure profit generation during their operations. Some of these techniques includes target costing, benchmarking and activity-based budgeting. Target costing This is not a new idea as far as a successful companies operation is concerned. It can be defined as the method that is implemented in determining the cost at which a product having particular parameters must the produced to ensure the required return rate is achieved.. This process entails analysis of cost that take place during the development phase and ensuring the cost is kept below the threshold (Stapenhurst, 2009). Target costing is one of the responsibilities that are pursued by the managing accountants even though several companies dramatically use a different approach. Due to the fact that target costing approach originated from a competitive environment many companies adopt a different approach in order to survive. ITT Automotive Company has been using the comprehensive target costing to ensure profitability in the sales. The fundamental objective of...
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...Cost accounting is a type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. (WebFinance, 2016) Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance. (WebFinance, 2016) The main objective of cost accounting is to calculate the cost per unit of a product or service. Its important for us to know the cost per unit for the following reasons: ➢ To know the cost ➢ To control ➢ To take the decision whether to stop or continue the product or service. There are three elements...
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...Definition: Target costing is a cost management tool for reducing the life-cycle costs of a product through cost reduction in the early stages such as Research & Development, Design and Pre-production planning. In addition, competitive market such technologies field, this costing system can enable management team to manage the business to be profitable. This can be explained that the cost plus pricing in this method is not an option Actually, target cost is the difference between target selling price (from market research) and desired profit. Thus, business e.g. E-tablet Ltd. must determine the target selling price and profit first before deduce the target cost. Also, depend on the quality of products; the selling price can be high or low. Moreover, if target costs meet with current achievable, the company can produce the product. However, if the target cost less than what it achieves, then management must trace back the cost in product and process design stage. Main cost reduction method: In order to move the actual cost toward the target cost, it should: - Reverse engineering: Business can look at its competitor’s product, and try to discover more design special features that can reduce the cost - Value analysis: Business should assess again value on the functions of products. If the selling price less than cost occur of specific function, then this function should be cut Especially, this method below is more popular: - Process improvement: Company could redesign the...
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... KAIZEN COSTING AND VALUE ANALYSIS content THIS DOCUMENT.......................................................................................................... 1 CUT THE PRICE OF YOUR COMPONENTS WHILE TURNING A PROFIT.......................... 1 A closer look at the complication............................................................................ 2 IN THE FOOTSTEPS OF QUALITY ASSURANCE TECHNOLOGY. .................................... 2 . KAIZEN COSTING: A DEFINITION............................................................................. 4 . A standard system:................................................................................................. 4 A Kaizen system:. ................................................................................................... 4 . KAIZEN ESTIMATES IN PRACTICE................................................................................. 5 CHOICE OF PERSPECTIVE............................................................................................. 6 VALUE ANALYSIS IS NECESSARY................................................................................... 8 DEVELOPING METHODS FOR COST RATIONALIZATION.............................................. 8 WHAT ARE THE BENEFITS OF KAIZEN COSTING?........................................................... 9 KAIZEN COSTING AND VALUE ANALYSIS KAIZEN COSTING AND VALUE ANALYSIS THIS DOCUMENT This White Paper describes the costing and value...
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... thus proving their flexibility in any business environment, whether turbulent or uncertain. Ensuring financial stability also requires adoption and use of an efficient management system. 1. What is Target Costing? Target costing of a product or job is sum total of the variable cost targets fixed for each element of cost (material, labor, power, consumables etc.) required to be incurred for producing that product or job estimated on zero-base principles, plus the fixed cost targeted on the same principles, so that the total cost plus the estimated margin of profit is not more than the price the product is capable of fetching in the market. Zero base principle is the variable cost incurred for producing zero units of the product and from that position what is the incremental variable cost for each unit plus the fixed targeted cost (Rent, Rates and taxes, advertisement, communication etc.) required to set up the facility to produce an estimated number of units. 2.Why is Target Costing important for corporations yearning to have market share and profitable future? The Advantage of Target Costings: 1. We have a cost goal to achieve within the selling price, on realization of which there can be no loss. Cost Optimization: A primary advantage of target costing is that it allows you to analyze the best way to make or acquire products at the lowest costs. Minimizing costs is a common financial goal of any small business, regardless of whether they offer high, medium...
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...Towards a conceptual framework for strategic cost management - The concept, objectives, and instruments - Von der Fakultät für Wirtschaftswissenschaften der Technischen Universität Chemnitz genehmigte Dissertation zur Erlangung des akademischen Grades Doctor rerum politicarum (Dr. rer. pol.) vorgelegt von Ibrahim Abd El Mageed Ali El Kelety geboren am 11.01.1965 in El Menoufia - Ägypten eingereicht am: 14. Juni 2006 Gutachter: Prof. Dr. Uwe Götze Prof. Dr. Dr. h.c. Jürgen Bloech Prof. Dr. Peter Schuster Tag der mündlichen Prüfung: 18. Juli 2006 Acknowledgement To the Almighty God “ALLAH” Who have granted me all these graces to fulfill this work and Who supported me in all my life. To Him I extend my heartfelt thanks. It is a pleasure to express my sincere and deepest heartfelt gratitude to my “Doktorvater“ Prof. Dr. Uwe Götze for his kind supervision, continuous encouragement, valuable enthusiastic discussion and unfailing advice throughout the present work, as well as financial support during my latest period of study in Germany. He assisted in all matters, provided solutions to different problems. Prof. Dr. Uwe Götze supported and helped me during my learning period in Germany and writing this thesis. I am very lucky being one of his students. I would like to express my deep thanks to Prof. Dr. Dr. h.c. Jürgen Bloech - Georg-August University of Göttingen - for his kind acceptance to act as an examiner. I would also like to express my sincere thanks to Prof. Dr. Peter...
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...search engines such as Google, Infoseek, Lycos, Excites and Altavista. These articles were downloaded from Internet Websites including IFAC library, CPA online newsletters, Institute of Management Accountants, CIMA (Chartered Institute of Management Accountants), Technical Bulletin and Institute of Commercial and Financial Accountants. The modern techniques used in Management Accounting are discussed. TQM (Total Quality Management), ABC (Activity Based Costing) and BSC (Balanced score card) are some of the tools that are introduced in management accounting to keep up with the latest technology. This research highlights the emergence of new, more proactive management accounting that increasingly becomes part of the management team with the business process. The future roles and expectations of these accountants in the competitive global economy are discussed. Keywords: Management accounting, Standard Costing Activity based costing, Balanced Scorecard, Information Technology INTRODUCTION M anagement Accounting is a process of providing financial and non-financial information for managers. Managers need to include information for planning and controlling either short or long-term decisions....
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...companies underrate the cost accounting systems’ importance, we cannot put them aside. Cost accounting has to provide relevant cost information for corporate executives to make correct decisions. Traditional cost techniques cannot model the really needed expenditures for producing a product well. Because of this, some techniques were developed, which measure the relation between costs and cost originators in more complex correlations and not just with a simple quantity-cost relations. Beside the traditional techniques (actual costing, standard costing, normal costing, etc.) new methods appear. Among the others, these are: Activity-Based Costing, Target costing, Process Cost System and Marginal Costing. The aim of this paper is to present these cost methods’ advantages and disadvantages, in order to find out, how the cost accounting profession can answer to the challenges of new business circumstances. Keywords: cost accounting, traditional methods, target costing, ABC method 1 INTRODUCTION Accounting, as business function,...
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