TargetCosting2.ppt
- 1. Target costing DOSEN PEMBINA LILIS PUSPITAWATI,SE.,M.Si
- 2. Target Costing Background Global competition Increased customer expectations Competitive pricing
- 3. The firm has two options for reducing costs to a target cost level By integrating new manufacturing technology, using ABC and seeking higher productivity By redesigning the product or service
- 4. % Industri Jepang yang Menggunakan Target Costing Food 14% Textiles 17% Paper & Pulp 0 Chemical 31% Oil, Rubber, Gas 36% Steel 23% Nonferrous metal 53% Machinery 83%
- 5. Shahid L. Ansari, Jane, E. Bell and the CAM-I Target Cost Core Group (1997, hal 7) : target costing process is system of profit planning and cost management that is price led, customer focused, design centered and cross functional. Hansen and Mowen (2000, hal 509) : target cost is the difference between the sales price needed to capture a predetermined market share and desired per-unit profit. Morse, Davis dan Hartgraves (2000, hal 380) : target costing is a proactive approach to cost management. Target costing starts with determining what customers are willing to pay for a product or service and then subtracts a desired profit on sales to determine the allowable, or target, cost of product or service. Defines of Target Costing
- 6. Characteristics of target costing It is used at planning and design stages It is cost planning, not cost control. It is used mainly for assembly-oriented industries It is used for controlling design specification and production techniques
- 7. Price led costing Focus on customer Focus on design Cross-functional involvement Life-cycle orientation Value-chain involvement Principles of Target Costing
- 8. SETTING TARGET COSTING Derive target cost from profit planning Derive target cost from engineering planning Combine the two methods
- 9. Implementing a Target Costing approach Determine the market price Determine the desired profit Calculate the target cost Use value engineering Use kaizen costing and operational control
- 10. Value Engineering Target costing is used in target costing to reduce product cost by analyzing the trade-offs between different types of product functionality (different types of product features) and total product cost An important first step in value engineering is to perform a consumer analysis during the design stage of the
- 11. A common type of value engineering Functional analysis : analysis of performance and product cost Design analysis : design team prepares several possible design of the product Cost tables : computer-based databases that include comprehensive information about the firm’s cost driver Group technology : the same part of product can be used in two or more product
- 12. Target Costing in Three Japanese Firms Firm/Industry Functionality Cost Reduction Approach Strategy Olympus/Cameras Increasing rapidly; is designed in Value engineering; concept of distinctive functionality for the price point, plus supportive functionality Heavy focus on managing functionality; importance of price point Nissan/Auto Rapidly increasing; easy to add or delete functionality Value engineering by product and by each component of each product; then increase price or reduce functionality Prices are set by desired customer expectations about functionality; after functionality is set, target cost is used to find savings, especially from suppliers Komatsu/ Construction equipment Static; must be designed in Design analysis, functional analysis, and productivity programs Primary focus is on cost control rather than redesign or functionality analysis
- 13. The Use of Target Costing in Health Product Manufacturing Design Analysis Alternative 1 Alternative 2 Alternative 3 R & D Expenditure ($50) $40 Replace the amplifier unit with one having slightly less power ($50) ($50) Replace the microphone unit with one of nearly equivalent sensitivity ($30) ($30) ($30) Replace toggle power switch with a cheaper and almost as reliable slide switch ($30) ($30) ($30) Replace the current inspection procedures with an integrated quality review process at each assembly station ($40) ($40) ($40) Renegotiate contract with supplier of plastic casing ($20) Replace plastic earpiece material with material of slightly lower quality but well within the user’s expectation for 6 to 10 years use ($20) Total Savings ($150) ($150) ($150)
- 14. The fifth step in target costing is to use continuous improvement and operational control to further reduce costs. Kaizen occurs at the manufacturing stage so that the effect of value engineering and improve design are already in place. Kaizen means continual improvement, that is, the ongoing search for new ways to reduce costs in the manufacturing process of a product with a given design and functionality
- 15. Price, Cost, Kaizen and Target Costing Dollar Price (Stable or Falling Price in an intensely Competitive Industry) Cost 1 Kaizen to reduce cost after each product redesign Cost 2
- 16. Summary Target costing is a philosophy or pricing approach and cost management Target costing process is system of profit planning and cost management that is price led, customer focused, design centered and cross functional. Target costing is a proactive approach to cost management
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