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Target costing and its in reducing the cost comparison at industrial compani

  1. 1. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 4, Issue 4, July-August (2013) 94 TARGET COSTING AND IT'S IN REDUCING THE COST COMPARISON AT INDUSTRIAL COMPANIES Mr. Emhemad Omar Abusef, Libya Dr. N.S. Rathi Assistance Professor, Department of Commerce, Dr. Babasaheb Ambedkar Marathwada University, Aurangabad I. ABSTRACT In this paper we data analysis from Libya constructing firm. In this analysis the costing and reducing of cost in industrial companies together we provide substantial advantages to users of these usage Such companies can accomplish decreases in new product development cycle time and cost without compromising value and functionality. This paper boasts assistance to current publications by adding empirical clues on the role of goal costing in the process of product development. Cost decrease and Optimization for constructing and Industrial Companies wrappings all foremost cost decrease localities, supplying very simple to read demonstrations and advice on steps to take. It presents the roadmap for applying recommended actions with factual and endeavoured procedures by taking a modern, all-inclusive gaze at manufacturing methods. This article benefits to costing in alignment to test the relationship between the uses of product development firm perform and the product’s development time and cost Cost decline and Optimization for constructing and Industrial businesses wrappings all foremost cost decline localities, providing very easy to read demonstrations and recommendations on steps to take. It presents the roadmap for applying recommended activities with factual and endeavoured methods by taking a modern, all-inclusive look at constructing procedures. Easy-to- understand and easy-to-implement cost decrease notions coordinated into five general localities work, material, conceive method, and overhead. The cost decrease locality and starts with the groundwork line first by summarizing key points supplies verified methods for chopping charges without a allotment of extraneous details and figures pursues a qualitative and design-oriented approach. Emphasizes fast implementation and discernable cost decline identifies who in the association should do the work summaries hazards and suggested risk mitigation activities comprises numerous benches, graphs, and images to display the notions described. Index Terms: Target Costing, pursue, notions INTERNATIONAL JOURNAL OF MANAGEMENT (IJM) ISSN 0976-6502 (Print) ISSN 0976-6510 (Online) Volume 4, Issue 4, July-August (2013), pp. 94-102 © IAEME: Journal Impact Factor (2013): 6.9071 (Calculated by GISI) IJM © I A E M E
  2. 2. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 4, Issue 4, July-August (2013) 95 II. INTRODUCTION A presentation association needs sustainable conceive investigation and method optimization constructing and mining goods and services to decrease quality costs in industrial companies. Article based on production of the link between sustainability and quality charges, presents the major methods and methods to counter developed businesses and focuses on sustainable methods for reducing value costs in developed societies. up to date methods but effective conceive (robust conceive), constructing (Lean Six Sigma scheme, Lean Process values, Just-In-Time Production, Total Quality administration) and post-sales activities endow the development of processes founded on to blame use of resources by eradicating waste and move internal and external users of dependable cost related to value and professionalism. Cost reduction is the method utilized by businesses to decrease their costs and boost their earnings. Depending on a company s services or merchandise, the strategies can alter. Every decision in the product development method sways cost. Focuses on rapid implementation of functional, real-world cost reduction solutions in today's financial climate, the need to cut charges can be the distinction between achievement and failure. Cost decrease and Optimization for constructing and Industrial Companies wrappings all foremost cost decrease localities, supplying very simple to read demonstrations and advice on steps to take. It presents the roadmap for applying recommended actions with factual and endeavored procedures by taking a modern, all-inclusive gaze at manufacturing methods. Easy-to-understand and easy-to- implement cost reduction notions coordinated into five general localities labor, material, design, process, and overhead. The cost reduction locality and begins with the base line first by summarizing key points Provides verified tactics for chopping charges without a lot of extraneous facts and figures Follows a qualitative and design-oriented approach Emphasizes fast implementation and measurable cost decrease recognizes who in the association should do the work Outlines dangers and proposed risk mitigation actions comprises numerous benches, graphs, and photographs to show the notions described The Cost decrease and Optimization for constructing and developed Companies, It takes an up to date, all-inclusive look at manufacturing methods but furthermore provides considerable treatment of engineering components and output schemes. It pursues a more qualitative and design- oriented approach than other texts in the market, assisting readers gain a better comprehending of significant notions. They furthermore discover how micro-economic situation concern to the method variables in a granted method as well as how to present constructing science and quantitative engineering analysis of constructing. It has conceived an exclusive, practical and clear-cut approach to cost decrease in manufacturing. This work provides valuable insights and solid methods, founded on real-world experiences, to any constructing association undertaking change to place itself to compete effectively in the global Since price is market driven, the overall strategy of a company has become a cost reduction strategy. Prices are set by markets, so in order to ensure a healthy profit margin, costs have to be managed. Traditional cost reduction techniques try to reduce costs when the product enters the manufacturing phase. Far too late, would be the reaction of a company that uses target costing. Target costing already starts looking at the cost of a product in the product planning and concept design phase. The product life cycle of nowadays products also tends to become shorter. For traditional cost reduction techniques, a shorter product life cycle implies less time to find cost reduction opportunities. As a consequence, target costing becomes more important. Outsourcing might emerge to be a very simple response. In much business, contracting out non-core enterprise functions such as human assets, billing, or payroll to third-party providers is profiting acceptance.
  3. 3. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 4, Issue 4, July-August (2013) 96 Some enterprises have even outsourced components of their functioning procedures. But one time an enterprise concludes to outsource, it furthermore reveals itself to new types of risk. For demonstration, an inferior supplier of outsourced services can, overnight, enforce lasting impairment on a company s attachment with its suppliers and customers. So anything route you take, you must precede with caution and knowing counsel. We have considerable know-how in planning, applying and evaluating cost decrease and cost containment programmed. We can render formal opinions on business and asset standards for tax and accounting reasons, enterprise transactions, and junction projects. And we can provide expert recommendations on Capital structuring and cost of capital Downsizings and carves outs Employee advantages and reimbursement programs financial function and IT effectiveness position are designing off shoring and global provide string of links Outsourcing Taxes. Businesses normally launch new merchandise without focusing too much on cost. Cost becomes more significant when competition increases and cost becomes a differentiator in the market. III. LITERATURE REVIEW Target costing Target costing is a charge procedure utilized by companies. It is characterized as "a cost administration tool for decreasing the general cost of merchandise over its entire life-cycle with the help of output, engineering, study and design. A target cost is the maximum allowance of cost that can be acquired on a product and with it the firm can still profit framings from the needed profit framings margin from that merchandise at a specific selling cost. Target Costing should be examined as a broader concept that encompasses goal Costing as well as other methods in cost administration that Target Costing can be part of a wider notion of Product cost management, called target cost management. In contended that TC should be used in a more strategic viewpoint and total cost command concept which is apparently a TC approach. These are distinct names for like methods which can be examined as part of the same general approach. Which are organized in three distinct ways? Foremost, the blend of products that are manufactured and sold is firmly controlled by top level administration through the efforts of a multi-disciplinary team. Secondly, the charges of new products are reduced through the methods of goal costing and value technology. Eventually, the costs of living goods are reduced through the system. eventually, it should be highlighted that these methods associated with TC are notion of continuous enhancement. TC means relentless enhancement in merchandise development and conceive methods and, which pursues TC procedures, means cost decreases in the manufacturing and delivery methods. TC is a method for organizing product charges during the conceive stage. After setting the goal charges, some coordination techniques Principles of Target costing Price-Led Costing As market charges are the determinants of product and earnings designs, the goal costing method needs an active market investigation. Focus on Customers Product characteristic and functions throughout product development take location to meet customer anticipations, and customers are eager to pay for them which will at the end enhance company s goals.
  4. 4. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 4, Issue 4, July-August (2013) 97 Focus on Design Target costing schemes boost all taking part purposes of the firm to analyze concepts which enable to organize charges before they are incurred rather than afterward due to the detail that most of production charges occur at the conceive stage. Cross-Functional Involvement Cost management activities throughout target costing process requires merchandise and process groups with constituents representing conceive and constructing technology, output, sales and trading, components procurement, cost accounting, service and support. One of the most important participants in the cross-functional groups is the suppliers and many investigations study the involvement of suppliers in goal costing process. Life Cycle Orientation Goal costing considers all the charges of owning a product over its entire life and from a customer s viewpoint; life cycle focuses on reducing the charges of operating, utilizing, repairing and disposing of the merchandise and from the producer s viewpoint; it focuses on minimizing the charges of development, output, marketing, distribution, support, service and disposition costs. Value-Chain engagement All members of the worth string of links such as suppliers, dealers, vendors, and service providers are engaged in the target costing method to execute an extended enterprise to conceive clientele worth and minimize charges which are furthermore the centre aim of goal costing. Cost commitment through the life cycle Low profit margins, no more first mover-advantages, low customer loyalty, high customer demands. These are all characteristics of today s markets where our companies have to compete in with each other. Those intense competitive pressures no longer make it possible for a company to survive by focusing on technical differentiation alone. The emergence of global markets has shunted aside such an old-fashioned strategy as initially introducing new products to technophiles at high prices and then subsequently scaling up volume and lowering price to satisfy the demands of the more conventional customer. Also the existence of lean competitors means that copycat, me-too product versions can be out on the market in a matter of months. Companies understand that products must be innovative, have high quality and low costs right from their initial launching. Otherwise lean imitators will swoop in and introduce their low-cost copycats. How can a company retain its competitiveness in a market with that kind of characteristics? Of course, the solutions are not as simple as driving out costs from the companies production, marketing, and distribution activities. Why not? Today, the majority of the companies have already squeezed out the fat of the production system, via their ongoing just in time (JIT) and total quality management (TQM) initiatives. Moreover, the cost gains from achieving marketing and distribution efficiencies are substantially smaller than the cost gains achieved through better product planning and design. Several authors argue that up to 80 percent of the product costs are committed at the design stage. Sakurai (1992, 3-2) even states that 100 percent of the product cost are determined at planning and design stages. Figure 1 shows the typical relationship between life-cycle costs and committed and incurred costs. In the design stage important decisions are made concerning material selection, production method, make or buy decision. All those decisions have a great impact on the costs of a product. However, figure 1 show that most of the costs incur after the design stage, i.e. when the product goes in production.
  5. 5. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 4, Issue 4, July-August (2013) 98 Figure 1 Life Cycle Cost There are time lags between designs about product design and their eventual impact on the recurring (operating) costs. Cost causes and cost occurrences are separated in time. Therefore, a company cannot focus only on cost reduction techniques that take the product design as given. The company has to be „cost conscious in every stage of the product s life cycle. Any company cannot ignore 80%; the product development stage is a real treasure island for cost reduction opportunities (Kato, 1993, 35). Fisher (1995, 50) explains why such a high percentage of the costs are committed in the design and development stage. He says: “Given a high level of automation, most production costs are determined in the product planning and design stages, so reducing product costs dramatically in the production is difficult”. Automation has changed the cost structure of many companies, causing more costs to be fixed in the short run. Cost impact on Quality A procedure for quantifying the value mentions to the measurement of quality charges, or non-quality charges, a assess showing how much it costs every year to supply quality administration activities and industrial company, the goods and services and associated activities. Actions that require reducing quality costs As cost decrease, utilizing of prevention(training quality, design method, removing the origin of failure, change process, quality audit, upkeep and ecological review) as well as notions evaluation (tests, measurements, evaluations, difficulty investigation, examination, verification), which begun swapping in the underlying developed companies Elements of direct or indirect impact on quality Nearly all the costs of value generators have direct or digressive influence on the natural environment and humanity. recognize in this consider internal defects (scrap, repair, unscheduled service undertakings, removing defects, lost output time, use more assets, waste processing technologies, scrap and other waste) but external obvious errors (returned goods, customer complaints due to decreases in billing, recall goods within warranty expenses, lawful charges, reduced accessibility of product procedure, malfunction, replacement and decreased safety)
  6. 6. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 4, Issue 4, July-August (2013) 99 Quality Measures imposed to reduce costs The life cycle of a product from conceive to implementation, use and recycling, developed companies should be to blame to correct, mitigate or eliminate the losses initiated. Other ways in which quality associated charges can be decreased: utilizing calculations at the preliminary investigations or by a conclusion taken by the leaders of the industrial company Method and Manufacturing Techniques and for industrial companies up to date constructing systems known as thin Six Sigma offer a variety of procedures and procedures to counter industrial businesses, aimed at to blame use of resources: thin Six Sigma scheme, thin Process values, Just-In-Time output, and Total value Management. Modern techniques but effective techniques but effective manufacturing (Lean Six Sigma System, Lean Process Principles, Just-In-Time Production, Total Quality Management) it is envisaged that modern, flexible, able to lead to outstanding performance by eliminating waste and reducing costs representing the safe way to excellence. Implementation of standards these methods proved to be a program that works and can be adopted not only production but also in services. Customer requirements are for an existing industrial essential. If we look at society and the environment as final customers of any organization, it makes sense and optimization efforts in terms of sustainability. The company may record the following types of costs: the cost of pollution, waste, accidents, interruptions of transportation or communication paths, and if they are identified early design phase could be minimized The Lean Six Sigma System Lean Six Sigma is improving quality and efficiency of processes based on a strong project and quantitative approach with clear target setting. For long-term success and sustainability of excellence in operations, techniques must be supported by an organizational philosophy that complete context of transactions. When these pieces are in location, thin Six Sigma s relentless pursuit of product value and method speed leads to corporate achievement and to individual achievement for the persons who contribute to that journey Figure 2 Lean Process Principles Lean production is a production philosophy that reduces the time between customer order and manufacturing, delivering the required product by eliminating waste. Lean production uses less of everything compared with mass production or mass, half the manufacturing space, half the investment of equipment, design half hours a new product.
  7. 7. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 4, Issue 4, July-August (2013) 100 Mentions to a new dynamic process of evolution of production, which covers all facets of developed procedures (product development, manufacturing, association and human resources, clientele service). Is focused strictly on clientele-supplier systems, systemic process driven by a set of values, methods and practices. Just in Time Method (JIT) Just in Time (JIT) is based on the idea that production activity must be calculated and designed with great precision so that inventories are minimized. It is a process oriented and applied primarily to manufacturing firms, should occur only what sells and just in time. Reduction or elimination of stokes minimum raw materials, parts, subassemblies, finished products lead to lower overall costs, regardless of production volume Location rational organizational links in order to reduce costs of operations that do not create value Total Quality Management (TQM) TQM is a complex process that causes a continuous quality improvement of product services to meet customer requirements in the context of increasing labor productivity and profit industrial organization replacing the periodic verification of product quality preventive control. Quality should be provided and certified the rules recognized/valid international ISO Fig. 3 The total quality management in industrial companies Post-sale activities Proposing sales and service answer entire and integrated modern methods output set, permitting sales department to competently manage the entire cycle of instructions, and all undertakings post-sale, supplying thus delivering orders on time and effective administration of all feminine dogs circulation. Therefore, we get reduce operational costs, acceleration, stimulation productivity and boost sales, finance improvements in approval customers. Applications include a broad range of clientele oriented methods - the distribution and sale of goods and professional services administration requirements for service, warranty and comes back, production and procedures administration, in production administration, boasts task case investigations and financial. For cost reduction measures to attach, businesses should clarify the cost drivers of the business and use that knowledge to create a heritage of cost consciousness, in both awful times and good.
  8. 8. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 4, Issue 4, July-August (2013) 101 IV. CONCLUSION AND AREAS FOR FUTURE RESEARCH Target Costing Approach, is considered as one of the modern procedures to reduce strategic costing that enables the directed it developed company get comparable benefit that could overwhelm its competitors in the market. This can be finished by strengthening the developed companies costing centre; then accomplish relentless growth advantage and stay in the competitive market. The centered notion is the enterprise organizational sustainable in which the corporation is construction in joint venture with stakeholder methods and mutual relations. Up to date methods but productive methods but productive constructing (Lean Six Sigma scheme, thin method values Just- In-Time Production, Total Quality Management) it is envisaged that modern, flexible, able to lead to outstanding presentation by eliminating waste and decreasing costs comprising the safe way to excellence. Implementation of measures these procedures verified to be a program that works and can be taken up not only output but furthermore in services. Clientele obligations are for an existing developed essential. If we look at society and the environment as last customers of any association, it makes sense and optimization efforts in terms of sustainability. The company may record the following types of costs: the cost of pollution, waste, misfortunes, interruptions of transport or connection routes, and if they are recognized early design phase could be minimized. The obvious and most interesting thing the application of architectural value concept in the industrial companies generates many ideas and real opportunities for cost reduction of products. All those applicable opportunities should be exploited practically from economic perspective. Consideration, the firms should pay necessary concerns to the internal and external variables of its competitive situation so that the strategies adopted is succeeded and to ensure its continuity and existence in the market. Furthermore, the industrial firms are able to apply Target Costing Approach strategy to achieve the competitive price via supporting the senior administration. Since such strategies are disciplined by the senior administration to itself. And the responsibility of using Target Costing Approach does not limited to the senior administrations but the other administrative levels such as the medium administrations, supervisors and personnel have their considerable role for successful application of the costing target. IV. REFERENCE 1. ANSARI S. L., BELL J., 1997, Target costing, the Next Frontier in Strategic Cost Management, The Cam-I Target Cost Core Group, Irwin, Chicago (USA), 245p. 2. BAYOU M. E., REINSTEIN A., 1996, Target costing for Product Safety, Advances In management Accounting, 1996, Volume 5 , 1-25 3. BUTSCHER S. A., LAKER M., 2000, Market-Driven Product Development, Using Target costing to optimize products and prices, MM Summer 2000, 48-53 4. COOPER R., SLAGMULDER R., 1999, Develop Profitable New Products with Target Costing, Sloan Management Review, summer 1999, 23-33 5. Badea, F. Production management, project case studies and economic. Aius, Bucuresti, 2006 6. Dobre, M., Măjinescu I. Planning and organizing production. PHARE Programs, Bucuresti, 2005 7. Militaru, G. Production and operations management, ALL, Bucuresti, 2008 8. Stan, L.; Mărăscu - Klein, V. Techniques to reduce cost sustainable quality in the industrial companies 19-21 April 2012 9. Liker, JK. The Toyota Way: 14 Management Principles from the World Greatest Manufacturer, McGraw-Hill, 2004 10. Ohno, T. Toyota Production System, Productivity, Press Portland, Oregan, USA 1998
  9. 9. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 4, Issue 4, July-August (2013) 102 11. Womack, J.,P.,Jones, D., Lean Thinking, Simon and Schuster, New York, USA, 1996 12. W.M. Baker, “The missing element in cost management competitive target costing,” Industrial Management,37(2), pp 29-32 1995. 13. A, H. Lockamy, & W. I. Smith. “Target costing for supply chain management:” Criteria and selection”Industrial Management & Data Systems, 100(5), 210-218) 2000. 14. F. Jariri_ & S.H. Zegordi “Quality Function Deployment, Value Engineering and Target Costing, an Integrated Framework in Design Cost Management: A Mathematical Programming Approach” 15. L. Ellram “Supply management's involvement in the target costing process", European Journal of Purchasing and Supply Management,2002 16. DUTTON J. J., FERGUSON M., 1996, Target Costing at Texas instruments, Journal of cost management, fall 1996, 33-38 17. ELLRAM L. M., 2000, Purchasing and Supply Management‟s Participation in the target Costing Process, Journal of Supply Chain Management, Tempe, Spring 2000, Volume 36, Issue 2, 39-52 18. KATO Y., BÖER G., CHOW C. W., 1995, Target Costing: An integrative management process, journal of cost management, spring 1995, 39-51 19. LEE J. Y., MONDEN Y., 1996, Kaizen Costing Its Structure and Cost Management Functions, Advances In Management Accounting, 1996, Volume 5 , 27-40 20. MONDEN Y., HAMANDA K., 1991, Target Costing and Kaizen Costing in Japanese Automobile Companies, Journal of management accounting research, Volume 3, 16-34 21. NICOLINI D., TOMKINS C., HOLTI R., OLDMAN A., SMALLEY M., 2000, Can Target Costing and Whole Life Costing be Applied in the Construction Industry?: Evidence from two Case Studies, British Journal of Management, Volume 11, 303-324 22. YU-LEE R. T., 2002, Target Costing: what you see is not what you get, Journal of cost management, July-August 2002, 23-28 23. R. Cooper “When Lean Enterprises Collide. Competing through Confrontation" Harvard. 1995. 24. Y. MONDEN & K. HAMADA “Target Costing and Kaizen Costing in Japanese Automobile Companies" Journal of Management Accounting Research, Fall 1991, p. 16-34). 25. H. Dekker & P. Smidt, “A survey of the adoption and use of target costing in Dutch firms” International Journal of Production Economics, 2003. 84: 293-305. 26. L. M. Ellarm“The implementation of target costing in the United States: theory versus practice” Journal of Supply Chain Management, 2006. 42(1): 13-26. 27. Ahmed, A., Berry, T., Cullen, J. V., & Dunlop, A. (1997, November). The consequences of inter-firm supply chains for management accounting. Management Accounting, 75(10), 74-75. 28. C. P. Aruna Kumari and Dr. Y. Vijaya Kumar, “An Effective Way To Optimize Key Performance Factors of Supply Chain Management (SCM)”, International Journal of Management (IJM), Volume 4, Issue 3, 2013, pp. 8 - 13, ISSN Print: 0976-6502, ISSN Online: 0976-6510. 29. Ravi Terkar, Dr. Hari Vasudevan and Dr. Vilas Kalamkar, “Enhancing Productivity Through Cost and Lead Time Reduction in Remanufacturing”, International Journal of Mechanical Engineering & Technology (IJMET), Volume 4, Issue 2, 2013, pp. 286 - 297, ISSN Print: 0976 – 6340, ISSN Online: 0976 – 6359. 30. Leandro Torres Di Gregorio and Carlos Alberto Pereira Soares, “Use of the Mix-Based Costing – Mixbc – to Determine Product Profitability, Level of Attractiveness and Synergy of the Production Mix”, International Journal of Management (IJM), Volume 3, Issue 2, 2012, pp. 1 - 12, ISSN Print: 0976-6502, ISSN Online: 0976-6510.