Chapter 3 - Costing Techniques Flashcards
Target costing 2/2
Pro-active cost control system
selling price minus target profit
-> in concept and design stages (can be used for existing products to identify cost excesses and to asses if cost planning activities are effective)
Stages: 1 Planning 2. Concept design 3. Basic design 4. Detailed design 5. Manufacturing preparation
Std costing: push system, internal , cost control, reactive
Target costing: pull, external, cost reduction, proactive
Kaizen costing vs target costing
Kaizen during mfg
Achieving cost reductions
Value analysis, value engineering
V-A: systematic, interdisciplinary examination of factors affecting the cost of a product or service, existing products
V-E: redesign of an activity, product or service so that value to the customer is enhanced while cost are reduced or at least increased by less than the resulting price increase. products which not have been produced yet.
Value types
Cost value (cost incurred during production)
Exchange value (customers willing to pay) (the price customers are willing to pay)
Use value (related to the function)
Esteem value (related to status or regard associated with ownership)
Method of value analysis
target outcome: reduction of components
- determine function of product and each component of the product
- determine costs of component
- develop alternative solution for function
- analyze components
- evaluate alternatives
- implement
Functional analysis
analysis of the relationships between production functions and their preceived value to the customer and their cost of provision
Value chain (Porter)
Support: infra, HR, Tech, Procure
Primary: inbound logistics, operations, outbound logistics, marketing and sales, service
Competitive advantages (Porter) Evaluate value chain (Shank and Govindarajan)
Comp Advantages
- Low cost strategy
- Differentiation strategy
Value chain:
- identify chain and costs
- diagnose cost drivers
- develop sustainable cost advantage
Life-cycle costing
Berliner and Brimson
Product life-cycle, manage in order to maximise return:
Design cost of the product (80/90% of costs come with the design)
Minimise time to market
Maximise length of life cycle
Life cycle cost budget (5 elements)
development costs design costs manufacturing costs marketing costs distribution costs
Target Costing Definition
Target costing is a pro-active cost control system. The target cost is calculated by deducting target profit from a pre-determined selling price based on customers views. Functional analysis, value analysis and value engineering are used to change production methods and or reduce expected costs so the target is met
Value analysis (definition)
Value analysis is the systematic interdisciplinary examination of factors affecting the cost of a product or service in order to devise means of achieving the specified purpose most economically at the required standard of quality and reliability
Value engineering (definition)
Value engineering is the (re)design of an acitivity, product or service so that value to the customer is enhanced while costs are reduced or at least increased by less than the resulting price increase
Functional analysis (definition)
Functional analysis is an analysis of the relationships between product functions, their perceived value to the customer and their cost of provision (which functions do customers value and how can these be achieved most efficiently)
Asset lifecycle costing
encourage whole-life product profitability mindset
take customer perspective
take natural capital into account (not costless!)
think of societal impact
