Theory Costing Flashcards
Target Costing
- Market research undertaken to collect customers views on the product
- Only the features they deem valuable are included in the product
- Target selling price and profit margin are set
- Target costs are calculated and any cost gap identified
- Stratergies to reduce cost gap are employed
- Setting a target cost by subtracting a desired profit margin from a competitive market price
Cost Gap
Target cost may be lower than initial product cost
Estimated cost - target cost = cost gap
Cost control implication of target costing
Motivates managers to find new ways to save costs
Performance management implication of target costing
Enhances as business finds methods to reduce costs
Pricing implication of target costing
More realistic as customers demand is considered
Cost control implication of target costing
Considered upfront as part of products development
Life Cycle Costing
Collecting together the costs of a single product/service over its entire life from R&D through to customer services and decomishioning. Will also consider revenues generated over the same period.
Product Life Cycle
Develop
Introduce
Growth
Maturity
Decline
Advantages of life cycle costing
Product life cycle helps with planning, can make appropriate changes in relation to where they are in the cycle. A product may not follow traditional cycle.
Kaizen Costing
- Reducing costs of an item via continuous improvements. Should be continual small improvements with the aim of reducing costs.
- Particiapiation of all workers needed. Employers empowered to devisee new methods and ways of working ro reduce costs.
- Used by performance management by setting reduction in costs as a target for improvement
- performance monitored by comparing the current cost with the target cost
