target costing
DESCRIPTION
The importance and methodology in target costingTRANSCRIPT
Definition
tc is defined as a cost management tool for reducingthe overall cost of product over its entire life cycle withthe help of the production, engineering, R& D……
intent of target costing
reduction in costplanning & designing high quality productsmeeting customers needsusing value engineering to target costattain target cost using standard costKeeping track of external market forcestc which can enable attain desirable market shareteam of engineers, designers, marketing, costing…
nature of target costing
Design
Type of Product
Technical Specification
Technical Requirements
Customers Needs
Resource Consumption (Acq Price)
Cost
MarketPrice
target costing methodology
R & D Design Manufacturing Marketing & Distribution
Customer Service
Upstream Activities(before Manufacturing)
Downstream Activities( After Manufacturing)
Manage UpstreamDuring product
Planning & designing
Provide frame workof strategic targets
to guidemanaging down stream
target costing methodology
Manage UpstreamDuring product
Planning & designing
Provide frame workof strategic targets
to guidemanaging down stream
Concurrent Engineering Analysis of market forcesCustomers NeedsRelevant TechnologyCompetitors ModelsProduct Configurations &Performance featuresDesign alternativesProcess capabilitiesMaintenance & Service RequirementsLife cycle costs
Target Costing
Keyprinciplesof targetcosting
Price led costing
Focuson the
customer
Focus onproductdesign
Focus onprocessdesign
Cross-functionalteams
Life-cyclecosts
Value-chainorientation
Target Costing Analysis reveal innovativepossibilities in several in several areas
especially for
Reducing
Cycle time for designCycle time for developmentCycle time for manufacturing & serviceCosts for design, developmentCosts for manufacturing & serviceNumber of total Parts per modelRate of redesign, rework and repair
End result is aProduct DesignWhich can
Face CompetitionGuarantee targetProfitTarget Cost against
Target Costing
BusinessPlan
ProductMarket
Strategies
Steps in target costing--summary
CustomerNeeds
ProductPerformance
Features
Value addedBy eachFeature &Component
Choose a product Design With assured target profitCost target for eachcomponent
ChooseManufacturing
Design assuringtarget costs
ChooseSuppliers assuring
Target cost
Cost ReviewConduct VE toReduce Target Costs
Monitor Product performanceCost & ProfitTarget Price
target costing Methodology
1Customer Requirements &GatheringMarket Information
Product featuresProduct pricingProduct QualityProduct AvailabilityProduct performanceProduct deliveryProduct Service
target costing Methodology
2 Documenting Customer Requirements
Product CharacteristicsCompetitor Performance ComparisonsTarget Performance ValuesCustomer Rating Comparisons
Data from
Customer SurveysExperience with PreviousProductsMarket Research StudiesEngineering StudiesCalculations & ModellngExperimentation
target costing Methodology
3 ComparingCompetitorsProducts
GlobalMarketLeader
Upcoming
Product
Price & PerformanceParameters similar forNew Product Planned
target costing Methodology
3 ComparingCompetitorsProducts
Price & PerformanceParameters similar forNew Product Planned
Data used ForDecision beBased On
Customer InputComparative Test DataPublished Performance SpecificationsAnnual ReportsTrade showsOther external Sources
target costing Methodology
3 ComparingCompetitorsProducts
Competitor Information
Annual ReportsMarketing BrochuresCommercial Data baseNewspapersMagazinesOther Publications
4 performance Testing
Several Samples ofEach product forPerformance Testing&Reverse Engineering
5 ApplyingReverseEngineering Reverse engineering can be viewed
as the process of analyzing a system to:
Identify the system's components and their interrelationships
Create representations of the system in another form or a higher level of abstraction
Create the physical representation of that system
Team having experts fromManufacturing, designing, industrial Engineering ,procurement, Estimating
5 ApplyingReverseEngineering
RE consist of estimating thefollowing
The type of ManufacturingProcesses used for eachcomponent
The time required toManufacture eachcomponent
The manufacturingPhilosophyOf each competitor
6 Cost StructureAnalysis
Internal cost of existing products
Competitors cost of similar products
Categorizing according to cost drivers
Comparative RatiosProjected costsBest practices
7 Value Engineering
Current cost of ProductVarious features of ProductImprovement requiredValue given by each functionWhat modification Cost reductionProduct improvement
Value Engineeringand Target Costing
Target cost information Product design Product costs Production processes
Target cost information Product design Product costs Production processes
Value Engineering Cost reduction Design improvement Process improvement
Value Engineering Cost reduction Design improvement Process improvement
target costing-Methods
1 Subtraction Method
2 Addition Method
3 Integrated Method
target costing-Methods
1 Subtraction Method
Based on competitors’ price, where the target costis worked backwards from the market price. The Target result may represent a very rigorous target and may be difficult to achieve
target costing-Methods
2 Addition Method
Based on the existing technology and past cost data of the company. It is achievable but ignores Market Conditions.
target costing-Methods
3 Integrated Method
Integration of Subtraction & Addition Methods
