TC, KC & LCC Essay Flashcards
In today’s fast-evolving
In today’s fast-evolving manufacturing landscape, traditional costing methods often fall short in addressing the demands of global competition, rapid technological changes, and shorter product life cycles.
Companies increasingly adopt alternative cost techniques like
Companies increasingly adopt alternative cost techniques like Target Costing (TC), Kaizen Costing (KC), and Lifecycle Costing (LCC) to stay competitive.
Each method offers unique ads
Each method offers unique advantages for different stages of product development and production, improving cost control and decision making.
Traditional costing primarily focuses on
Traditional costing primarily focuses on post-production cost control, which is reactive and often ineffective for dynamic markets.
Shank and Fisher (1999) highlighted this limitation through a case study
Shank and Fisher (1999) highlighted this limitation through a case study on Montclair Mill, which struggled under traditional costing but achieved better cost management with TC, aligning production more closely with market demands.
Hibbets, Albright, and Funk (2003) argue that
Hibbets, Albright, and Funk (2003) argue that intensified competition, globalisation, and technological shifts require proactive cost management techniques like TC, KC, and LCC that support both cost leadership and differentiation strategies.
TC, developed in
TC, developed in Japanese firms like Toyota, is a proactive cost management approach.
TC starts with a target price
TC starts with a target price based on customer expectations, from which the desired profit margin is subtracted to determine allowable costs.
This ensures cost manag. is integrated
This ensures cost management is integrated into product development, aligning with market demands from the start.
Butscher and Laker argue that
Butscher and Laker argue that TC helps firms maintain competitiveness by meeting customer expectations without compromising profitability.
Shank and Fisher (1999) found TC effective in
Shank and Fisher (1999) found TC effective in aligning product costs with customer expectations in highly competitive markets.
However, TC’s success depends on accurate market
However, TC’s success depends on accurate market insights; fluctuations in customer demand or input costs can complicate maintaining fixed target costs.
KC emphasizes continuous improvement
KC emphasizes continuous improvement and incremental cost reduction, involving all employees in minimizing waste throughout production.
Modarress, Ansari, and Lockwood (2005) note that
Modarress, Ansari, and Lockwood (2005) note that KC fosters a cost-conscious culture, with firms like Boeing achieving significant savings through employee-driven efficiency improvements.
KC is particularly effective in
KC is particularly effective in lean manufacturing environments where adaptability is crucial.
It not only reduces costs but also
It not only reduces costs but also boosts morale by empowering employees to contribute directly to production outcomes.
However, KC can face challenges when employees
However, KC can face challenges when employees resist continuous changes.
Sustaining incremental improvements requires strong
Sustaining incremental improvements requires strong organizational commitment, which can be difficult if there is high employee turnover or fatigue from ongoing changes.
LCC takes a comprehensive view of product costs
LCC takes a comprehensive view of product costs over its entire life cycle, from design to production and post-sale.
By evaluating long-term costs, LCC supports
By evaluating long-term costs, LCC supports decision-making that considers total profitability over a product’s lifespan, enhancing investment decisions in design and development stages.
Cooper and Slagmulder (2004) highlight how firms like Olympus
Cooper and Slagmulder (2004) highlight how firms like Olympus benefit from integrating LCC with other cost methods, allowing better control over total product costs and reducing the risk of cost overruns.
However, LCC relies on robust data systems and
However, LCC relies on robust data systems and accurate forecasting, which can be challenging in fast-changing industries with unpredictable demand.
Together, TC, KC, and LCC provide a holistic
Together, TC, KC, and LCC provide a holistic approach to cost management across different stages of production.
TC aligns costs with market demands
TC aligns costs with market demands during product design, KC facilitates continuous improvement in production, and LCC supports long-term profitability.
