Lec 3 - Costing Flashcards

1
Q

What are the challenges in manufacturing?

A

Traditional costing methods struggle with demands of global competition, rapid tech changes, and shorter product life cycles.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the need for alternatives and what are these alternatives?

A

Companies must adopt new cost management techniques to stay competitive. The key techniques are:
- Target Costing (TC): sets cost targets based on customer expectations.
- Kaizen Costing (KC): focuses on continuous, incremental cost reduction.
- Lifecycle Costing (LCC): accounts for costs over the entire product life cycle.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is a key limitation of traditional costing methods?

A

Traditional costing is reactive, focusing on cost control after product development, which often fails to meet the demands of dynamic markets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How did Montclair Mill illustrate the limitations of traditional costing?

A

According to Shank and Fisher (1999), Montclair Mill struggled with profitability under traditional costing but improved cost management and market alignment after switching to Target Costing (TC).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Why do companies need new cost management techniques according to Hibbets, Albright, and Funk (2003)?

A

Rising competition, globalization, and rapid technological advancements require techniques that support both cost leadership and product differentiation strategies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Which cost management techniques are considered proactive alternatives to traditional costing?

A

Target Costing (TC), Kaizen Costing (KC), and Lifecycle Costing (LCC) are proactive approaches better suited to dynamic market needs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is Target Costing (TC) and where was it originally developed?

A

Target Costing (TC) was developed in Japanese firms like Toyota. It is a proactive approach to cost management that begins by setting a target price based on customer expectations and subtracting the required profit margin to determine the allowable cost.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How does Target Costing (TC) align product costs with market demands?

A

TC aligns product costs with market demand by establishing the target price first and then managing costs proactively during product development, ensuring companies meet customer expectations without sacrificing profitability (Butscher and Laker).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How did Shank and Fisher (1999) demonstrate the effectiveness of Target Costing (TC)?

A

Shank and Fisher (1999) highlight that TC is effective in aligning product costs with customer expectations and competitive pressures, particularly in highly competitive markets, helping companies maintain competitiveness.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Why is Target Costing (TC) effective for firms with differentiated products?

A

According to Hibbets, Albright, and Funk (2003), TC helps firms with differentiated products balance unique features with competitive pricing, enabling them to maintain profitability while meeting market demands.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What challenges does Target Costing (TC) face?

A

TC depends on accurate market insights, and changes in customer price expectations or market conditions can make it difficult to maintain. Additionally, TC struggles with fluctuating input costs, as fixed target costs may not adjust easily to these fluctuations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is Kaizen Costing (KC) and how does it differ from Target Costing (TC)?

A

Kaizen Costing (KC) is a continuous improvement approach focusing on incremental cost reductions by involving employees at all levels to minimize waste. Unlike Target Costing (TC), which sets cost targets upfront, KC aims for ongoing improvements throughout the production process.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How does Kaizen Costing (KC) foster a culture of cost efficiency?

A

KC fosters a culture of cost efficiency by involving employees at all levels of the company, encouraging them to continuously seek small improvements in cost management. This helps in creating an environment where cost reduction becomes a shared responsibility (Modarress, Ansari, and Lockwood, 2005).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How has Kaizen Costing (KC) contributed to savings in companies like Boeing?

A

In firms like Boeing, KC’s emphasis on teamwork and accountability has led to large savings and increased efficiency. The continuous focus on improvement has resulted in notable reductions in costs and improved production processes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Why is Kaizen Costing (KC) effective in lean manufacturing environments?

A

KC is particularly effective in lean manufacturing environments because it emphasizes responsiveness and adaptability, which are essential for maintaining efficiency and minimizing waste in such settings.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What challenges can Kaizen Costing (KC) face in organizations?

A

KC can face challenges in companies where employees resist continuous changes or where there is high turnover. Maintaining momentum for incremental improvements requires strong commitment from the firm, which can be difficult if staff become fatigued by constant changes.

17
Q

What is Lifecycle Costing (LCC) and how does it work?

A

Lifecycle Costing (LCC) provides a comprehensive view of product costs over its entire life cycle, including design, production, and post-sale stages. It helps firms anticipate long-term costs and consider total profitability, enhancing decision-making for investments in product design and development.

18
Q

How does Lifecycle Costing (LCC) improve decision-making in product design?

A

LCC improves decision-making by allowing companies to consider all stages of a product’s life cycle. This helps them make informed decisions early in the design process, which can lead to better control over total product costs and reduce the risk of cost overruns (Cooper and Slagmulder, 2004).

19
Q

How has Olympus benefited from integrating Lifecycle Costing (LCC) with other cost management methods?

A

Olympus achieved better control over total product costs by integrating LCC with other cost management methods, allowing them to consider the entire life cycle of the product. This approach improved their ability to manage costs and make better decisions (Cooper and Slagmulder, 2004).

20
Q

What are the main challenges of Lifecycle Costing (LCC)?

A

LCC relies on robust data systems and accurate future cost estimates. In industries with rapidly evolving technologies and unpredictable customer demand, maintaining these data systems and forecasts can be difficult, posing a challenge for effective implementation.

21
Q

How do Target Costing (TC), Kaizen Costing (KC), and Lifecycle Costing (LCC) combine to offer a holistic approach to cost management?

A

Combining TC, KC, and LCC provides a comprehensive cost management strategy: TC aligns costs with market demands during design, KC supports continuous improvement during production, and LCC focuses on long-term profitability, helping manage costs at all stages of a product’s life cycle.

22
Q

How do integrated cost management approaches like TC, KC, and LCC help companies manage costs effectively?

A

According to Cooper and Slagmulder (2004), integrating TC, KC, and LCC allows companies to manage costs effectively at all stages of a product’s life cycle, from design to production to post-sale, ensuring better control over total costs.

23
Q

What are the barriers to implementing integrated cost management approaches like TC, KC, and LCC?

A

Adler, Everett, and Waldron (2000) note that barriers to adoption include resistance to change, lack of resources, and difficulties in shifting from traditional cost management practices, which can hinder the implementation of integrated approaches.

24
Q

In conclusion

A
  • TC, KC, and LCC address different stages of cost management, providing a comprehensive solution to challenges in a changing manufacturing environment.
  • Combined use of these techniques allows companies to meet immediate cost targets (TC), sustain ongoing cost control (KC), and plan for long-term profitability (LCC).
  • Despite limitations, adopting these methods is essential for maintaining competitiveness in dynamic markets.