Chapter 8 Lecture Slides Flashcards
1
Q
Total-Life-Cycle Costing
A
- The process of managing all costs along the value chain, “cradle to grave”
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2
Q
Target Costing
A
3
Q
Computing Target Costs
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4
Q
Calculating the breakeven time for a new product development project
A
5
Q
Selecting nonfinancial measures for product development processes
A
6
Q
Identifying Environmental Costing Issues
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7
Q
The Organization’s Value Chain
A
- The value chain may be divided into stages, which correspond to different cost control approaches
- Total-Life-Cycle Costing, Environmental Costing
- Target Costing and Value Engineering
- Research, Development,& Engineering Stage
- ABC, Kaizen Costing
- Manufacturing Stage
- Post-Sale Service and Disposal Stage
- Target Costing and Value Engineering
8
Q
Life-Cycle Revenues
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9
Q
Stages of the Total Life Cycle
A
- Percentage of Costs on y axis, time on x axis
- RD&E account for 80% of costs committed; 10% of costs incurred
- Manufacturing
10
Q
Total-Life-Cycle-Costing: RD&E
A
- Market research: customer needs, ideas
- Product design: technical aspects
- Product development: prototypes, processes
- 80% to 85% of a product’s total life costs are committed by decisions made int he RD&E cycle
- An additional dollar spent on activities that occur during this cycle can save at least $8 to $10 on manufacturing and post-manufacturing activities
11
Q
RD&E: Target Costing
A
- Tradeoffs in the RD&E stages
- design products that meet customers’ expectations
- products that achieve desired profitability
12
Q
Traditional Method
A
- begins w/ market research into customer requirements followed by product specification
- companies engage in product design and engineering and obtain prices from suppliers
- after the engineers and designers have determined product design, cost is estimated
- if cost is deemed too high, may modify the product design
- otherwise, often try to set price at cost plus markup
13
Q
Contrast with Target Costing
A
- Marketing research is customer-driven, w/ customer input obtained continually throughout the process (as in the MB case study)
- Costs are driven down during the design process
- Cross-functional product teams (individuals representing the entire value chain; interorganizational)
- Suppliers pay a critical role in role in making target costing work
- Total-life-cycle concept: cost of ownership
14
Q
Traditional Pricing vs. Target Costing
A
- Estimated Cost vs. Target Selling Price
- Plus: Desired Profit Margin vs. Less: Target Profit
- Expected Selling Price vs. Equals: Target Cost
15
Q
Price-led Costing
A
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16
Q
Target Profit Margin
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29
Q
Illustration of Breakeven Time
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