Target Costing Nano

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Target Costing Nano

  1. 1. TARGET COSTING Managerial Accounting
  2. 2. TARGET COSTING  Meaning  Application  Value Engineering  Kaizen Costing  Traditional Costing Process Model  Target Costing Process Model  Merits & Demerits Target Costing  Case Study Target Costing
  3. 3. MEANING  Target Costing is a process of developing costs for a product (or services) based on market driven considerations.  A method that allows firms to provide consumers with products that they want, at a price they can afford, and still earn desired financial returns.  Six Key Principles Price Led Costing Customer Focus Focus on design of products and processes Life Cycle cost reduction Value Chain involvement
  4. 4. APPLICATION  To start from the market and work back to production process, through design and development of product that customer needs at acceptable prices.  It is applied in the design and development stage.  Target Cost of a product = Target selling price less Target Profit  Value Engineering is a key to achieving target costs.  It is a systematic evaluation of all aspects of production and marketing that starts from R&D, Design of products, and distribution to customers, ending with customer service.  Target costing is widely used by Japanese and American Industries in automobiles (Toyota), Electronics (Panasonic), Information Technology (Apple).
  5. 5. VALUE ENGINEERING
  6. 6. VALUE ENGINEERING  Value Engineering (VE) is a management technique that seeks the best functional balance between cost , reliability and performance of a product, project and process or service.  Value engineering (VE) is a systematic method to improve the "value" of goods or products and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be increased by either improving the function or reducing the cost For example, the function of a pencil is to "make marks". This then facilitates considering what else can make marks. From a spray can, lipstick, a diamond on glass to a stick in the sand, one can then clearly decide upon which alternative solution is most appropriate.
  7. 7. VALUE ENGINEERING - MERITS
  8. 8. KAIZEN COSTING CHANGE FOR BETTER KAI ZEN Change Better
  9. 9. TARGET COSTING / KAIZEN COSTING  Kaizen costing is a cost-reduction system that is applied to a product in production.  The word ‘Kaizen’ translates to ‘continuous improvement’ or ‘change for the better’ and aims to improve productivity by making gradual changes to the entire manufacturing process.  Kaizen costing is applied to products that are already in production phase. Prior to kaizen costing, when the products are under development phase, Target Costing is applied.
  10. 10. TRADITIONAL COSTING PROCESS MODEL Product Requirement Product Design and Development Supplier Cost Estimates Production Process Design & Product Cost Estimates Cost is too high
  11. 11. TARGET COSTING PROCESS MODEL Production and Logistics Sales
  12. 12. TARGET COSTING – 4 STEP APPROACH
  13. 13. CASE STUDY - TATA NANO
  14. 14. PRODUCT DEVELOPMENT - NANO  To develop a product for people who want to move from 2 wheeler to 4 wheeler in affordable price.  Car to cost within a price range of Rs 1,00,000.  Car to be developed with low cost, safety, low on emissions and fuel efficient.  To be a truly people’s car.  Car to be developed on three main factors. Cost Safety Regulatory requirement
  15. 15. PRODUCT DEVELOPMENT (TARGET COSTING) Just one wind shield wiper Plastic panel designed to eliminate need of screws Seats with integrated head rest Use of aluminum engines to reduce weight and cost. No radio, No AC, No side mirrors Material Substitution (i.e. Engineering Plastics) Use of Plastic and adhesive rather than Welding and metal body.
  16. 16. REFERENCES Cost Accounting – Theory & Practice www.tatanano.com, www.tatamotors.com www.google.com , www.wikipedia.com
  17. 17. THANK YOU Institute for Technology and Management (ITM) Mahesh Karane Sneha Chougule Praveen Devasthali MBA’ 11

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