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  • 8/3/2019 Presentatie OMC


  • 8/3/2019 Presentatie OMC



    13-1-2012 2

    Monden &Hamada

    Bhimani &Neike

    Chp 11 Chp 12 Chp 13

    Activity Based









    Total cost


    Product Re-

    design by target

    costing design





    Radical redesign of

    products or

    processes (prior to


    -Reduce usage of cost drivers

    -Reduce cost per unit of the


    -Discover & eliminate

    unprofitable business

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    Target Costing and Kaizen

    Costing in Japanese Automobile

    Companies.- Monden, Y. and Hamada, K. (1991), Target costing and kaizen costing in Japanese automobile

    companies, Journal of Management Accounting Research, Fall91, Vol. 3, pp. 16-34

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    Target Costing

    The system to support the cost reduction

    process in the developing and designing phase

    of a new model, full model change or a minor

    model change. Target Costing can be devided in five steps.

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    1. Corporate Planning

    2. Developping specificnew product

    3. Determining the basicplan for the new product

    4. Product Design.

    5. Product Transfer Plan

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    Two processes of Target Costing

    1)The process of planning a specific product that

    satisifies Customers needs and establishes the target

    cost from the target profit and targeted sales price.

    (Selling price Desired Profit = Target cost)

    2)The process of realizing the target cost by using value

    engineering and a comparison of target cost with

    achieved cost.

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    Target Cost Cycle

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    Establish a target profit for the product

    Determine the target costs

    Perform functional cost analysis (value engeneering)

    Determine the cost estimate

    yes Is the target reached? NO

    Make the final decisison

    Send to manufacturing

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    Target Costing in Dutch Firms

    A Case study of dutch firm who uses Target Costing.

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    Source: Dekker, H. Smidt, P. A survey of the

    adoption and use of target costing in Dutch firms.

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    Kaizen & Kaizen Costing

    Kaizen: Japanese for "improvement", or "change forthe better" refers to philosophy or practices that focus

    upon continuous improvement of processes in

    manufacturing, engineering, game development, and

    business management. (Manos, 2007) -> supports the cost reduction process in the

    manufacturing phase of existing products.

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    Kaizen & Kaizen Costing

    formulas:1) Amount of actual cost per car in last period = Actual cost last

    period + Actual production

    2) Estimated cost for all plants in coming period = Actual costper car in last period + Estimated production.

    -> Target of Kaizen cost for the coming period = Estimated cost

    for all plants in coming period + Target ratio of cost decreaseamount to the estimated cost.

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    Kaizen, Kaizen Events & Traditional


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    Kaizen in practice

    Management by Objectives: Cost meetings are held at severalorganizational levels. the amount of the reduction targetisassigned through "management by objectives" at thatorganizational level.

    The Kaizen cost target is achieved by daily Kaizen activities. TheJIT production system also intends to reduce various wastes in the

    plant by these daily activities. -> Kaizen costing and the JITproduction system are closely related with each other.

    Six elements of kaizen:


    Personal discipline

    Improved morale Quality circles

    Suggestions for improvement

    Reducing Wastes

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    Conclusion so far:

    Target costing and Kaizen costing, when linked

    together, constitute the total cost management system

    of Japanese companies, and thus are a highly effective

    way of increasing efficiency.

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    How siemens designed its

    target costing system toredesign its products

    Bhimani,A. and Neike,C. (1999), How Siemens designed its target

    costing system to redesign its products,Journal of Cost

    Management, July/August, pp.29-34

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    Fiber Optics business unit


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    Semi-conductors group

    Change electrical impulses within computer into light

    impulse, which are transmitted to other transceivers

    Among first players in the customized products market

    Business Unit Problems:

    1- Growing number of new intrants into industry in mid 90s

    2- Increasing complexity of HLFO products

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    ->Cost reduction target for transceivers: 70%

    (of entire life-cycle)

    Project Proposal:

    Alterations to the actual design of the transceiver

    Changes in production processes

    Concluded:-> Reengineering exercise to alter the product

    ->Restructuring the manufacturing processone automated

    line prior to Mass-customization


    Need for more extensive accounting information

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    Old situation:direct material and direct labor both served as a basis for theapplication of different overhead costs using predefinedoverhead rates.

    Resultdifficult for the design engineers to relate changes in

    components to changes in production (costs)

    Important for new situation:

    Overhead cost have to be allocated to a smaller base,

    doubling the allocation ratio.Cost inputs were analyzed

    A causal linkage between the decicions at the design stageand the resulting effects on the production costs was made!

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    With help of ABC analysis:

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    The cornerstone of the project was to applytarget-costing concepts to set market-definedparameters affecting production cost, timingand quality factors.

    They drew up on two engineering andaccounting techniques which lead to processbased target costing:

    1.Functional analysis

    2.FPRM (function-process relationship


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    Functional analysis

    First strip down to their product functions using

    value-engineering techniques (h12)

    Value-engineering techniques: systematic evaluation of

    all the aspects of the value-chain business functions in

    which usefulness is added tot the products or services

    of an organisation.

    Two functional analysis

    1.Engineering driven

    2.Customer driven

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    Activity based costing(h11) concepts and value engineering are bothcombined and depicted within the FPRM to produce a modularfunction-proces relationship, whereby market factors are tied todesign changes via cost, quality and timing issues

    Activitiy based costing systems refine costing systems by focusing on

    individual activities as the fundamental cost objects. Shows the fixed and variable cost distribution for each process.

    Enables customer requirements to be identified alongside companycosts, time and quality factors

    Production process and product material costs can be linked to

    specific customer requirements to achieve enhanced productdesigns

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    Cost Objects




    Cost Objects



    Product orservice


    ->ABC or ABM: Refines costing system by focusing onindividual activities as the fundamental cost objects

    (MACA h12)

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    Process based target costing

    Target costing(h12):the estimated long-run cost ofa product, that when sold the company achieve thetarget operating profit per unit

    Relate product function areas to the productionprocesses.

    Enables the quality of the production output ateach process stage to be monitored.

    The allocation costs proceeds from the processesto the functions.

    meet market value expectations.

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