Page 280 - DCOM206_COST_ACCOUNTING_II

Unit 14: Emerging Concepts in Cost Management

4. It provides an overall framework for considering total incremental costs over the entire Notes
life span of a product, which in turn, facilitates analysis of parts of the whole where cost
effectiveness might be improved.

Self Assessment

Fill in the blanks:
12. The thrust of product life cycle costing is on the …………………… of costs among categories
changes over the life of the product.

13. …………………… provides an overall framework for considering total incremental costs
over the entire life span of a product.
14. Product life cycle costing involves tracing of costs and …………………… of each product
over several calendar periods throughout their entire life cycle.
15. The …………………… of a product involves the purchase of the raw materials, the purchase
of bought-out components, the use of labour to make and assemble the product and the
use of supervisory labour.



Case Study Conceptual Framework for Launching and
Implementing Target Costing in Automotive Industry

ost management method used by automakers must be useful for the production of
new products which meets the customer’s demand at lowest cost as well as an aid
Cto cost reduction of existing product by eliminating wastes. To achieve this,
automakers need the total cost management system which includes target costing.
Environmental changes in automotive industry for example: the shortening of product
life cycle, diversification of customer’s demands and highly competition in automotive
industry are inevitable .With such changes, cost management method used, must be useful
for production of new products which meets customer’s demands at lowest cost. On account
of this, automakers have come to need total cost management which includes product
development and design activities as well as product activities. This contrasts with
traditional cost management which focused on cost control in the production stage. In fact
the most of the costs in the production stage are determined in the stage of new product
development and design indicated the need for total cost management. Target costing is
an activity which is aimed at reducing the life-cycle costs of new products, while ensuring
quality and customer requirements, and by examine all possible ideas for cost reduction
at the product planning, research and development, and the prototyping phases of
production. Target costing is an important tool because it promotes cost consciousness
and focuses on profit margin, both of which strengthen an organisation’s competitive
position.
Advantages of Target Costing for Automotive Industry
As seen in the target costing history, automotive sector is the one which has applied the
elements of target costing extensively since 1970s, and it is not surprising that there are
case studies that exhibit the benefits of target costing in automotive sector. For example,
in the study of Cooper and Chew (1996); the authors conducted a case-study in Japanese
Isuzu and highlighted that target costing was an efficient strategy versus the pressure of
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