A customer-centric costing system that bases all cost workings for a product from its market price. The purpose is to reduce cost of a product as low as possible to arrive at a price that would be either equal to or less than that of competitors’ product while delivering the same functionality.
Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
A power point presentation describing some basic definitions, father of cost accounting, Indian aspect of cost accounting and Various Methods and Techniques of costing.
Presented by: Aquib Ali, Ajay Gupta and Ashwin Showi. (M.Com students)
at the Bhopal School of Social Sciences(BSSS) on 6 September, 2017
Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
A power point presentation describing some basic definitions, father of cost accounting, Indian aspect of cost accounting and Various Methods and Techniques of costing.
Presented by: Aquib Ali, Ajay Gupta and Ashwin Showi. (M.Com students)
at the Bhopal School of Social Sciences(BSSS) on 6 September, 2017
Cost Volume Profit (CVP).
Introduction
Fixed costs
Variable costs
Semi variable costs
Contribution margin
Break even point
PV Ratio
BEP ANalysis.
break even point
Cost-volume-Profit.
Cost Accounting-
-Meaning of Cost Accounting
-Scope of Cost Accounting
-Nature of Cost Accounting
-Relationship b/w Financial Accounting & Cost Accounting
-Cost Accounting v/s Management Accounting
-Objectives of cost accounting
-Function of cost accountant
-Essentials of cost accounting
-Advantages of cost accounting
-Limitations of cost accounting
-Role of cost in cost accounting
-Cost Unit & Cost Centre
-Cost Techniques
-Costing Systems
-Costing Methods
-Cost Classification
-Components of total cost
-Cost Sheet.
This ppt covers the following points :-
1. introduction of management accounting
2. Definition of management accounting
3. Nature, objective, tools and techniques, significance and limitations of management accounting
4. difference between financial and management accounting and also includes difference between cost and management accounting
5. management accountant and its roles
6. Management accounting organisation
Transfer Pricing
Objectives of Transfer Pricing
Methods of Transfer Pricing
Cost Based Transfer Pricing
Market Based Transfer Pricing
Negotiated Transfer Pricing
Advantages and Disadvantages
The most comprehensive definition of internal audit is given by the IIA, USA. It is,
"Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes."
The purpose of the presentation is to provide clarification for a better understanding of what internal audit definition, objectives, functions, stages and reporting are all about? What difference does it make in the presence of an external audit? How different is its scope from that of the external audit? How internal audit standards contribute to better performance of internal audit work and its reporting to the Board or Audit Committee?
ICQs provide system for the assessment of risks embedded in the internal control system. Every internal auditor prepares ICQs according to his understanding of the internal control system. There are some certain common areas that are present in every organization. This ICQs deal with those common areas that are integral part of every organization's internal control system.
Cost Volume Profit (CVP).
Introduction
Fixed costs
Variable costs
Semi variable costs
Contribution margin
Break even point
PV Ratio
BEP ANalysis.
break even point
Cost-volume-Profit.
Cost Accounting-
-Meaning of Cost Accounting
-Scope of Cost Accounting
-Nature of Cost Accounting
-Relationship b/w Financial Accounting & Cost Accounting
-Cost Accounting v/s Management Accounting
-Objectives of cost accounting
-Function of cost accountant
-Essentials of cost accounting
-Advantages of cost accounting
-Limitations of cost accounting
-Role of cost in cost accounting
-Cost Unit & Cost Centre
-Cost Techniques
-Costing Systems
-Costing Methods
-Cost Classification
-Components of total cost
-Cost Sheet.
This ppt covers the following points :-
1. introduction of management accounting
2. Definition of management accounting
3. Nature, objective, tools and techniques, significance and limitations of management accounting
4. difference between financial and management accounting and also includes difference between cost and management accounting
5. management accountant and its roles
6. Management accounting organisation
Transfer Pricing
Objectives of Transfer Pricing
Methods of Transfer Pricing
Cost Based Transfer Pricing
Market Based Transfer Pricing
Negotiated Transfer Pricing
Advantages and Disadvantages
The most comprehensive definition of internal audit is given by the IIA, USA. It is,
"Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes."
The purpose of the presentation is to provide clarification for a better understanding of what internal audit definition, objectives, functions, stages and reporting are all about? What difference does it make in the presence of an external audit? How different is its scope from that of the external audit? How internal audit standards contribute to better performance of internal audit work and its reporting to the Board or Audit Committee?
ICQs provide system for the assessment of risks embedded in the internal control system. Every internal auditor prepares ICQs according to his understanding of the internal control system. There are some certain common areas that are present in every organization. This ICQs deal with those common areas that are integral part of every organization's internal control system.
Capital Budgeting is about how one should evaluate the financing options based on the superior financial performance through mathematical techniques. These techniques have been discussed in the presentation in detail.
AI and Machine Learning Demystified by Carol Smith at Midwest UX 2017Carol Smith
What is machine learning? Is UX relevant in the age of artificial intelligence (AI)? How can I take advantage of cognitive computing? Get answers to these questions and learn about the implications for your work in this session. Carol will help you understand at a basic level how these systems are built and what is required to get insights from them. Carol will present examples of how machine learning is already being used and explore the ethical challenges inherent in creating AI. You will walk away with an awareness of the weaknesses of AI and the knowledge of how these systems work.
A Project Report
On
PRODUCTIVITY IMPROVEMENT THROUGH TOTAL QUALITY MANAGEMENT
Submitted in partial fulfilment of requirements
For the award of the Degree of
BACHELOR OF ENGINEERING
IN
PRODUCTION ENGINEERING
By
ABHINANDAN KUMAR
Under the guidance of
Prof. KAPIL DEV PRASAD
Department of Production Engineering
DEPARTMENT OF PRODUCTION ENGINEERING
BIRLA INSTITUTE OF TECHNOLOGY, MESRA, RACHI
2014
ABC is a costing system where indirect costs are assigned to products and services. The system establishes a relationship between overhead costs and production activities by allocating overhead costs to them with high precision. As a result, overhead costs are allocated more accurately based on their relevant activity levels. The system has eliminated the defects of the traditional/absorption costing system. ABC is used both as a planning tool and as a controlling instrument after the production is finished. ABC provides the basis for pricing decisions, inventory valuation, profitability analysis and overhead allocation. The system can effectively be used for both products and services.
Corporate Social Responsibility (CSR) is about how companies manage their business processes to produce an overall positive impact on society. It covers sustainability, social impact and ethics on business interests and objectives. This presentation also gives a balancing view of the commercial interests of businesses and social & environmental obligations of a business enterprise.
The ISO 26000 standard defines CSR as:
an organization's responsibility for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that:
- contributes to Sustainable Development, including health and the welfare of society;
- takes into account the expectations of stakeholders;
- is in compliance with applicable law and consistent with international norms of behavior;
- and is integrated throughout the organization and implemented in its relations.
The 6 core subjects listed by ISO 26000 are:
1. Human rights
2. Labor practices
3. The environment
4. Fair operating practices
5. Consumer issues
6. Community involvement and development
The presentation covers all aspects of CSR and provide adequate guidance on the principles and practices of CSR.
Value Analysis (VA) is a tool (technique or method) that is used for improving the value of a product or a process of understanding its constituent components and their associated costs. It aims at finding improvements to the components by reducing their cost and increasing the value of the functions of a product or a service.
A critical advantage to using a VA is its potential for reducing costs, which is a benefit that permeates all advantages of the system.
A VA breaks-down a product or service into components, it enables you to analyze each component on its own, evaluating its features and functions in detail efficiency and effectiveness.
Microfinancing is a type of banking service provided to unemployed or low-income individuals or groups who otherwise would have no other access to financial services. The objective is uplifting the economic activity at the lowest strata of the population. The generation of economic activity would alleviate poverty through the creation of income and employment opportunities.
A VAT audit is the FTA’s assessment of a company about its responsibility as a taxable person. The audit ensures that a company has fully captured the input and output tax on its all vatable transactions. This audit is conducted to ensure that the tax liability is calculated correctly and paid in full within the stipulated timeframe. The FTA also assesses a company whether they are fulfilling all responsibilities that apply to its business as per the VAT law.
The FTA can conduct the audit within 5 years for any business, but in some circumstances, the FTA has the right to extend the time frame for the audit and record-keeping.
VAT Evasion or Fraud: Penalties & Precautions (The UAE Perspective)Ahmad Tariq Bhatti
Tax evasion or fraud refers to a case where a taxable person intentionally defrauds to pay less tax or no tax to the FTA that is lawfully due to him. With tax evasion, the taxpayer intentionally and deliberately misrepresents the tax liability to avoid paying higher taxes to the government. The government loses money as a result of this act. Therefore, the law imposes severe penalties to such taxable persons. The tax fraud necessarily includes an intention to not pay the tax. The FTA has to prove through fraud examination tests or techniques that the person held for tax evasion or fraud has been intentionally involved in this act.fraud
Life-cycle costing is a system that provides an estimate of all the costs and revenues attributable to a cost object (product, service, project or asset) from its development to its discarding or dis-lodging or discontinuing or removing or abandonment from the market.
Life-cycle costing can be applied to products, services, projects, or assets over the entire life-cycle in the market. The objective of life-cycle costing is to maximize returns over the entire life of a product, service, project or asset by minimizing costs and maximizing revenues through the application of planning, management, and controlling techniques.
Budgeting — A Framework for the Budgetary Controls SystemAhmad Tariq Bhatti
A budget is a formal statement of estimated income and expenses based on future plans and objectives. In other words, a budget is a document that management makes to estimate the revenues and expenses for an upcoming period based on their goals for the business.
A budget is basically a financial plan for a given period, normally a year. It greatly enhances the success of business undertaking.
Corporate budgets are essential for operating at cost efficiency. Aside from earmarking resources, a budget can also be helpful in setting goals, measuring outcomes and planning for contingencies.
This is a pictorial depiction of the life in Lahore during the British rule in the subcontinent. This was a time where the camera came into this region. The life and time were captured by many people during this era. We collected some of those pictures and presented them here for you. This presentation will go a long way in understanding the plight of common people especially the people who were living in the city of Lahore and its suburbs.
There is a saying, a picture is worth a thousand words. It is also believed, we are a reflection of the people who lived before us and the people coming after us will be a reflection of ours. It is also said, seeing is believing. These proverbs will come to your mind again and again while seeing this photo album.
The earliest picture starts in 1859 and the last one is around 1950, in this way more than 90 years have been covered. The photos are arranged in chronological order. We have rejected scores of photos only because the references were not available or were doubtful enough to be taken here.
We exercised due care and diligence in reporting the year of the photos, however, any mistake in writing the year of a photo is inadvertently mine, therefore, it should be excused. Any correction suggested by the viewers will be noted for the next editions.
Internal Control Questionnaires for Construction CompaniesAhmad Tariq Bhatti
Risk assessment and plugging them is key to the success of business processes. Construction companies are exposed to many kinds of risks. Correct identification of these risks is necessary for the management of such risks. We have prepared these risk assessment questionnaires from the perspective of construction companies. The coverage of issues is adequate. Hopefully, these questionnaires will be helpful in plugging key risks and drive successful business operations of construction companies. We welcome comments for improvements. Thank you.
Employee Assessment and Evaluation for Continuation of ServiceAhmad Tariq Bhatti
Trust Versus Performance Model explains the employee evaluation on the basis of two factors ie trust and performance. The model helps to retain employees on these two parameters of success.
Internal Controls are defined as a system of well designed procedures by a company’s management and top-level executives, to provide a substantial degree of assurance in achieving business objective, while complying with the policies and laws, safeguarding the assets, maintaining efficiency and effectiveness in regular operations and reliability of financial statements.
Internal Control Questionnaires are preliminary risk assessment procedures for the existence and working of the internal control system. These questionnaires are filled in the presence of the auditor. Ideally, an auditor reads these questions and a relevant area employee replies in yes or no based on his knowledge of the process.
The questionnaire is useful to determine which areas the audit should focus on more as compared to rest ones. When employees answer the questions, the auditor knows whether the company is keeping accurate records overall, and proper system of internal controls. The same area questions may be asked from different employees of the same area in order to keep the risk assessment fool proof.
Dengue or break-bone fever is a mosquito-borne disease that is caused by the biting of Dengue infected mosquito. Symptoms typically begin three to fourteen days after infection. This may include a high fever, headache, vomiting, muscle and joint pains, and a characteristic skin rash.
Salalah in Oman is exotic location for refreshing and enjoyment. Salalah green rugged hills, sea shores, historical & religious places, scenic beauty and a lot more...
What are the main advantages of using HR recruiter services.pdfHumanResourceDimensi1
HR recruiter services offer top talents to companies according to their specific needs. They handle all recruitment tasks from job posting to onboarding and help companies concentrate on their business growth. With their expertise and years of experience, they streamline the hiring process and save time and resources for the company.
Improving profitability for small businessBen Wann
In this comprehensive presentation, we will explore strategies and practical tips for enhancing profitability in small businesses. Tailored to meet the unique challenges faced by small enterprises, this session covers various aspects that directly impact the bottom line. Attendees will learn how to optimize operational efficiency, manage expenses, and increase revenue through innovative marketing and customer engagement techniques.
Affordable Stationery Printing Services in Jaipur | Navpack n PrintNavpack & Print
Looking for professional printing services in Jaipur? Navpack n Print offers high-quality and affordable stationery printing for all your business needs. Stand out with custom stationery designs and fast turnaround times. Contact us today for a quote!
Unveiling the Secrets How Does Generative AI Work.pdfSam H
At its core, generative artificial intelligence relies on the concept of generative models, which serve as engines that churn out entirely new data resembling their training data. It is like a sculptor who has studied so many forms found in nature and then uses this knowledge to create sculptures from his imagination that have never been seen before anywhere else. If taken to cyberspace, gans work almost the same way.
Accpac to QuickBooks Conversion Navigating the Transition with Online Account...PaulBryant58
This article provides a comprehensive guide on how to
effectively manage the convert Accpac to QuickBooks , with a particular focus on utilizing online accounting services to streamline the process.
Taurus Zodiac Sign_ Personality Traits and Sign Dates.pptxmy Pandit
Explore the world of the Taurus zodiac sign. Learn about their stability, determination, and appreciation for beauty. Discover how Taureans' grounded nature and hardworking mindset define their unique personality.
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
www.seribangash.com
Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
https://seribangash.com/promotors-is-person-conceived-formation-company/
Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
Explore our most comprehensive guide on lookback analysis at SafePaaS, covering access governance and how it can transform modern ERP audits. Browse now!
Business Valuation Principles for EntrepreneursBen Wann
This insightful presentation is designed to equip entrepreneurs with the essential knowledge and tools needed to accurately value their businesses. Understanding business valuation is crucial for making informed decisions, whether you're seeking investment, planning to sell, or simply want to gauge your company's worth.
Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
Cracking the Workplace Discipline Code Main.pptxWorkforce Group
Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. You’ll also learn
• Four (4) workplace discipline methods you should consider
• The best and most practical approach to implementing workplace discipline.
• Three (3) key tips to maintain a disciplined workplace.
5. TARGET COSTING
Target Costing 5
A customer-centric
costing system that bases all cost workings for a product
from its market price. The purpose is to reduce cost of a
product as low as possible to arrive at a price that would be
either equal to or less than that of competitors’ product
while delivering the same functionality.
6. ORIGIN
Target Costing originated from Japan in 1960s as a direct consequence of increasing
influence of western products in Asian markets. Western products were superior in
quality and reasonable in prices. Japanese companies struggled hard due to shortage of
resources for development of such products that could compete western products in
quality, cost and productivity. They constituted teams of cross-functional technicians
to find out products that could compete in cost, quality and productivity. These teams
examined production processes minutely. Their aim was to increase the degree of
integration between up-stream and down-stream activities of a company’s operations.
Target Costing originated out of these examinations. Finally, such designs of products
were found that could beat competitors’ products in cost, quality and productivity. They
achieved this goal by using several tools from different disciplines, such as engineering,
production, marketing, design and management & cost accounting.
The tools used by them included the following: Value Analysis, Value Engineering,
Functional Analysis, Kaizen Costing, Lifecycle Costing, market analysis tools,
managerial accounting tools, production methods, etc., etc.
Target Costing enabled Japanese companies to have effective and efficient designing
and product development departments.
Now, Target Costing is used across the world today for achieving cost-competitiveness.
Target Costing 6
7. COSTING SYSTEM
Improves the understanding of the costs of products and services,
where issues are identified at the design development stage of a
product so that a corrective action can be taken for cost-efficiency.
Brings a focus on the final users of a service or product.
Is multidisciplinary and involves cross-functional team of
technicians in the cost management and encourages them to take
responsibility for cost-competitive design of a product.
Provides a framework which encourages a focus on the wider
supply chain, in effect a whole systems approach.
Can be used by service organizations to look at the impact which
new services have on the existing ones.
Develops specific and real targets which ensure satisfactory
financial performance.
Highlights other problems in areas such as purchasing which affect
the cost of the product or service.
Target Costing 7
8. DEFINITION
According to CIMA Official Terminology a target cost is,
“a product cost estimate derived by subtracting a
desired profit margin from a competitive market
price.”
Target costing is a formal system that attempts to achieve a target cost.
Target costing is just not costing system or cost management technique but
this is a complete business management philosophy that is purely market-
oriented.
Target Costing (TC) is a
“structured system for achieving a target cost at
which a proposed product with its specific
functionality must be produced to generate a target
profit at its target selling price.”
Target Costing 8
9. OBJECTIVE
• Reducing cost of a product
equal to that of competitors’
product at design stage to
enable the company to stay
competitive in the market in
terms of price and product
features.
• TC is a market-driven costing
system for developing a
product that is primarily and
effectively used for cost
planning and controlling at
allowable levels throughout the
lifecycle of a product.
Target Costing 9
10. PROCESS
Target Costing 10
It is an iterative process which is used by a design
development team, the process continues to change design
of a given product until the cost of a product is either
lowered or becomes equal to target cost while maintaining
the required level of functionality.
Management benchmarks a product from a market and launches its own
campaign to create a similar product from its own manufacturing
facilities/resources at the same cost and with the same design and features.
To achieve this purpose, a team of cross-functional technicians (engineering,
production, marketing, design, management accounting departments) is
constituted.
The purpose behind achieving target cost is to beat competitive products and to
ensure required market share and profitability. If the product under design is
delivering same value as that of competitors’ products and has lesser or equal
cost, then, the product has competitiveness in the market, otherwise, the product
may be failed in the market.
11. UTILIZATION
Target Costing 11
TC is being used invariably across the world today, as a tool for cost
management, to secure required market share and to achieve desired
profit levels.
More than 80% companies in Japan that are in assembly line business,
employ TC as a tool or technique to manage their cost.
More than 60% companies in Japan that are in processing industry, use TC
as a cost management technique.
Here are given the names of few reputed companies that are using TC as a
mechanism for cost management:
Boeing, Eastman Kodak, Honda, Daimler, Chrysler,
Caterpillar, GE, GM, Toyota, Nissan, Sony, Mitsubishi,
Ford, Motorola, etc., etc.
CAVEAT
It is learned through experience that TC is best suited for industries that have
non-customized and high volume products.
12. APPLICABILITY
TC is the most effective system for planning,
controlling and monitoring of cost for new products
at each stage of their life cycle.
HOWEVER
It can also be used for existing stream of products.
Why TC is effective for new products?
It is noted through studies, 70% to 80% cost is
planned and committed at design stages. If all focus is
placed on cost-cutting at design stages then cost is
managed according to the plans efficiently and
effectively.
Target Costing 12
13. COMMITTED COST
Target Costing 13
Committed costs refers to the costs that management agrees to incur for
product development through all stages of the life cycle. Studies have
suggested, about 70% to 80% of manufacturing cost is committed at
design stages of a product. TC focus all attention at cost components
(materials, labor & overheads) at design stages. For example, it is
decided at product design stages, what type of materials to be used and
from where they can be acquired? What alternatives are available for
those materials in the market? How many suppliers for the materials are
available in the market?
Which supplier will provide the required quality materials at required
quantities at a given point in time at an allowable cost?
Suppliers are also involved at design stages to provide cost effective
solutions. For instance, suppliers can help in reducing cost by suggesting
alternative parts or components at the lowest cost for a desired level of
functionality.
Similar decisions are made for labor and overhead costs.
14. COST ACCUMULATION
The cost of a product is accumulated at different stages in the lifecycle of
a product. A lifecycle of a product starts from concept stage and ends
with recycling or decomposing of a product. Therefore, TC aims to
control cost at each stage in order to achieve overall target cost of a
product.
Following are the costs that are normally incurred at each stage of
lifecycle of a product:
1. Design ----------- Concept development, design, tooling, proto-
type
2. Manufacture ----------------- incurring direct cost of materials,
labor and indirect costs (materials, labor and other overheads)
3. Operations ------------- Warehousing, Distributing, Selling,
Admin, loading and unloading costs, local taxes, advertising,
warranty, etc.
4. End/retire --------------- Recycling, disposal cost, decomposing
cost
Target Costing 14
15. ALLOWABLE COST
COMPARED W. TARGET COST
Allowable Cost is the maximum cost that can be
incurred on the development of a product
WHEREAS
Target Cost is the estimated cost over the entire
life cycle that management incurs to develop a
product with required level of functionality to
achieve target profit at a target price.
CAVEAT
If the target cost cannot be achieved then the product should
not be launched. Further, design team must not be allowed to
achieve target cost by eliminating desirable product functions
or features. As the product would stand weaker against the
competition in the market if desired features are compromised.
Target Costing 15
16. RELATED CONCEPTS
Target Pricing
Cost-Plus Pricing
Absorption Costing
ABC Costing
Life Cycle Costing
Kaizen Costing
Value Analysis
Value Engineering
Functional Analysis
CAVEAT
TC is just not a cost work-out technique but it is a complete business management
philosophy. We, hereby, mention in brief, as to how, each of the above mentioned tools is
related to TC.
Target Costing 16
17. COMPARISON
TARGET PRICING
1. Competitors’ prices are considered for
setting prices
2. Price determines cost of a product
3. Design is primary focus for reducing
cost
4. Cross functional team of technicians
participate in cost management
5. Suppliers are involved at design
stages
6. Involve value chain in cost planning
Important Note
Price setting procedure for a product under Target Pricing is
exactly reverse to that of Cost-Plus Pricing.
COST-PLUS PRICING
1. A certain amount of profit is added to
cost to arrive at a price
2. Cost determines price of a product
3. Focus is on meeting budgeted cost,
reducing production losses and
wastages
4. Cost and Management Accountants
work out cost of products and suggest
cost reductions
5. Suppliers are involved at production
stage
6. There is no consideration for value
chain at cost planning stage
Target Costing 17
18. DIFFERENTIATED
Target Costing 18
1: Design a
product
2: Determine
product costs
3: Set price
based on cost
4: Convince
customers about
product value
Cost-based Pricing
1: Check-out
customer needs
and value
perceptions
2: Set target
price to match
customer
perceived value
3: Determine
target cost
4: Design
product within
target cost
Target Pricing /Value Based Pricing
19. PROCESS FLOW CHART
Target Costing 19
Target
Price
Target
Cost
Target Disposal
Cost
Target
Warrantee Cost
Target Selling
& Admin Cost
Target
Production
Cost
Target Design
Cost (RD&E)
Review and
examine all
Target
Cost
Elements
regularly
and let them
not exceed
their
allowed
levels
20. PRICE-TAKER FIRM
Every firm is a price-taker firm under conditions of a perfectly competitive
market. There are numerous firms in the market that are producing identical
products in a given price range. This is why, a single firm cannot dictate its price
in a perfectly competitive market. However, in a monopoly or monopolistic
competition, a firm can dictate price or a small number of firms can dictate the
price, as the products offered by them don’t have perfect substitutes in the
market.
Other conditions that are present in a perfectly competitive market are given as
under:
All companies are selling identical products, therefore, perfect substitutes
exist for the products offered by them
There are no barriers for entry or exit in the market for companies
Every company has relatively small share
Buyers and sellers have full information about the market, prices and
products offered there
CAVEAT
Adopting Target Pricing is mandatory for a firm/company that is working under
conditions of perfectly competitive market. Otherwise, competitive pressures will
throw the firm out of the market one day.Target Costing 20
21. LIFECYCLE COSTING
• Lifecycle Costing (LCC) refers to
a process of identifying and
recording all costs that are incurred
over the entire lifecycle of a
product. LCC includes cost
incurred before production of the
product till cost incurred for
disposal of the product.
• TC attempts to achieve reduction of
Lifecycle Costs of a new product
by examining all stages for cost-
reduction at R&D, production and
disposal stage a product. TC is just
not a costing system but a
comprehensive profit planning tool
for a product over the entire
lifecycle.
Target Costing 21
Analysis of Lifecycle Costs
22. KAIZEN COSTING
Target Costing 22
Kaizen Costing (KC) refers to a process of cost improvement through small
incremental amounts rather than through large innovations. KC continues
throughout the manufacturing process. In TC, the main purpose is
achieving target cost over the lifecycle of a product. After the design is
finalized, the production starts, KC focuses on eliminating costs during
production processes. KC achieves this purpose by reducing unnecessary
cost during manufacturing processes. KC achieves cost reductions through
increased efficiencies during production processes. Every employee is
required to produce cost efficiencies in production processes. KC goals for
cost reduction are given to each employee on monthly or yearly basis.
Actual results are compared with KC goals. The actual results achieved are
made base for new KC goals for each employee. In this way, KC,
continuously improves cost at production stage. Since, TC requires cost
efficiencies during the entire lifecycle of a product, therefore, the same
objective is followed during production through application of KC.
23. HOW TC WORKS?
1. Market Survey and Research is conducted about the price and features
(functions and characteristics) of a product that is to be benchmarked by a
management.
2. Preparing feasibility around Target Price, Target Profit and Target
Cost.
3. The primary focus is on the product design that could match target cost.
Product design is changed time and again to reduce cost. This process is
repeated till the time target cost is achieved by a design.
The following tools are used at this stage: Value Analysis, Value
Engineering, Functional Analysis etc., etc.
4. Working out cost for each stage of a product’s lifecycle. This would help
in achieving overall target.
5. Implementing KC for continuous improvement in cost of a product during
remaining stages of the life cycle of a product.
Target Costing 23
24. PRODUCT DEVELOPMENT
Target Costing 24
Product
Design &
Development
Product
Concept
&
Feasibility
Product
Strategy
& Profit
Plans
Competitive
Strategy
Market
Research
Competitive
Intelligence
Production
Attain Target
Establish Target
25. RELATED CONCEPTS
Target Costing 25
VALUE ANALYSIS
A systematic analysis that identifies and selects the best value alternatives
or designs, materials, processes, and systems.
VALUE ENGINEERING
Value Analysis (VA) is used for existing products whereas Value Engineering (VE) is
used for new products at the design stages. Both Value Management Techniques
(VMTs) have same purpose of reducing cost without any compromising on the quality
of a product.
VE is an organized effort directed at analyzing the functions of the various
components for the purpose of achieving these functions at the lowest overall cost
without reductions in required performance, reliability, maintainability, quality, safety,
recyclability, and usability.. The relationship between VE and TC is: Once a target
cost has been set, the organization must determine target costs for each component in
a product. VE is used to examine the design of each component of a product to
determine whether it is possible to reduce costs while maintaining functionality and
performance.
FUNCTIONALANALYSIS
Functional Analysis (FA) refers to the relationships between product functions, their
perceived value to customers and their cost to provision.
26. Target Costing 26
RELATED CONCEPTS
ACTIVITY BASED COSTING
ABC is a cost attribution to cost units on the basis of benefit received from
indirect activities. (Cima Official Terminology)
ABSORPTION COSTING
It reflects full cost pertaining to a product. It is also referred as Traditional Costing.
CROSS-FUNCTIONAL TEAMS guide the target costing process. These
teams may include, for example, representatives from the organization’s design
engineering, manufacturing, management accounting, and marketing areas, as well as
representatives from among suppliers, customers, distributors, and waste disposers.
SUPPLY CHAIN MANAGEMENT, which involves developing
cooperative, mutually beneficial long-term relations between buyers and suppliers,
plays a critical role in target costing when suppliers actively participate in resolving
cost reduction problems.
Important Note
When cost-plus pricing is used, the total cost of a product may be calculated either by Absorption
Costing or by Activity-Based Costing. ABC provides more accurate cost of a product due to more
accurate allocation of overheads.
27. DECISIONS
Following are a few typical decisions that are made by a
product design and development team for achieving a
Target Cost:
Deciding about features/characteristics/functions of a product to
achieve the desired functionality
The components or parts to be used in the product
Identifying whether the components are standard or specialized
The detail about production processes and sub-processes
What components or parts are to be produced in-house and what
parts to be out-sourced?
How outlook of a given product is impacting customer perception in
the market?
Plan about cost incurrence for each stage of life cycle of a product
The batch size of a product considered for manufacturing
Target Costing 27
28. COST WORK OUT--
STEP BY STEP
1. Establishing a target price in the context of latest offerings
from competitors in a market
2. Establishing target profit based on required profit, like ROI or
%age of sales or another base approved by a management
3. Determining target cost:
Target Cost = Target Price – Target Profit
4. Determining allowable cost
5. Determining cost gap
Cost-Gap = Allowable Cost – Target Cost
6. Finding ways and means to reduce Cost-Gap to nil to
achieve a Target Cost
Target Costing 28
29. REDUCING
COST-GAP TO NIL
Target Costing 29
Reducing cost-gap to nil is the biggest challenge for design
development team. They cannot compromise on the functionality of a
product that is benchmarked by their management, yet they have to
achieve target cost. Every product has its own unique development
scheme.
We here generalize few ways by which cost -gap is reduced to nil.
• Frequent changes in design until cost comes either equal to or less than the
target cost
• Using alternative materials or parts/components
• Using cost-effective labor
• Using standard components that are normally available in the market
rather than using specialized parts or components
• Using latest technology
• Removing all activities or processes that add no true value to the final
product
30. IMPLEMENTATION
CHALLENGES
Target Costing 30
Some of the potential problems in implementing a target costing system
from a behavioral point of view are:
Conflicts that arise between parties involved in the target costing
process, (e.g., the conflict that arises between suppliers and the target
costing organization when too much pressure is placed on suppliers to
cut their costs),
Burnout among employees, and
Some employees (such as senior executives) reject the idea and do not
understand its value.
31. ADVANTAGES
Managing cost to target levels for staying competitive in the market
Market-driven production strategies ensure success in the market
Allowing use of the latest technology at design stage helps for having
better design and superior product performance in a market.
Assures best value for money to customers. Delivers optimal value
proposition to end-consumers
Assures required market share
Ensures max customer satisfaction
Reduces development cycle of a product by reducing product-line
complexity
Allows cross functional team of technicians to work together and
share their views freely for achieving a cost-effective design of a
product
Provides cost control at all stages of life cycle of a product like design,
production/set-up, service/repair, disposal/recycling
Target Costing 31
32. DISADVANTAGES
It takes more time than usual to achieve a design that meets all market
considerations pertaining to cost and allows a price that is acceptable in
the market. The iterative process of finding target cost is more time
consuming.
Since team of cross-functional technicians is working together, it may
have behavioral issues because of different working background. In
traditional methods, only design department supposed to finalize the
design.
Too much cost consciousness may hamper smooth functioning between
departments.
Target costing is relatively difficult to apply in service industries due to
paucity of information and high level of specialties.
Target Costing 32
33. ILLUSTRATION # 1
Target Costing 33
Mega Electronics is planning to manufacture product X. The
selling price of product X is calculated at 640 dirhams per unit.
The company is planning to sell 2000 units/month at this price.
Target Profit is estimated at 15% of sales and expected cost per
unit is 575 dirhams.
Calculate Cost-Gap /unit for product X?
Solution
Target Profit = 15% x 640 = 96 dirhams per unit
Target Cost = Target Price – Target Profit
Target Cost = 640 – 96 = 544 dirhams per unit
Cost-Gap = Expected Cost – Target Cost
Cost-Gap = 575 – 544 = 31 dirhams per unit
Note: The product design team is required to put more effort to
bring this cost-gap to nil.
34. Target Costing 34
ILLUSTRATION # 2
Alpha Pharmaceuticals is fixing Sale Price of product Y at 500 dirhams
per unit. The company is expecting a sale of 10,000 units per annum at
this price. Management has given approval for going ahead with this
price. The company’s ROI is estimated around 18% p.a. The company is
making an investment of 1,550,000 dirhams on launching of this product.
Calculate Target Cost per Unit?
Solution
Total Target Profit = 18% x 1,550,000 = 279,000 dirhams
Target Profit per Unit = 279,000/10,000 = 27.9 dirhams
Target Cost = Target Price – Target Profit
Target Cost = 500 – 27.9 = 472.10 dirhams/unit
35. ILLUSTRATION # 3
Target Costing 35
Gamma Chemicals is planning to launch a product Z. Target Sale Price for this
product is calculated at 20 dirhams per unit. The company is expecting to capture
the required market share at this price. This is why, management has given green
signal for this price at the launching of this product. Target profit margin is 30%.
The estimated production cost per unit of this product is 16 dirhams per unit.
Calculate Cost-Gap for this product?
Solution
Target Profit per Unit = 30% x 20 = 6 dirhams
Target Cost per Unit = 20 – 6 = 14
Cost-Gap per Unit = 16 – 14 = 2 dirhams
Note: Product design team may have little more effort in bringing the cost-gap to
nil.
36. ILLUSTRATION # 4
Target Costing 36
Omaga Company is planning to extend its product line and is adding a new
product H. The product has a Target Price of 230 dirhams per unit. The price is an
average of all prices of all products that have similar features in the market.
Management is perceiving that the product will easily survive at this price in the
market. Target Profit of this product is estimated around 60 dirhams per unit.
Calculate Target Price for this product?
Solution
Target Cost = Target Price – Target Profit
Target Price = Target Cost + Target Profit
Therefore,
Target Price = 230 + 60 = 290 dirhams per unit
37. ILLUSTRATION # 5
Target Costing 37
Zeta Textiles is using Cost-Plus Pricing for its products. They are launching a
new product RTY. The product has a cost of 1,000 dirhams per unit. The
markup on cost is 20%.
Calculate price per unit of the product by using cost-plus pricing method?
Solution
Price = Cost + (markup %age x Cost)
Price per unit of RTY = 1,000 + (20% x 1,000)
Price per Unit of RTY = 1,000 + 200 = 1,200 dirhams
38. ILLUSTRATION # 6
Target Costing 38
Description
Cost detail in each year of lifecycle
Year 1 Year 2 Year 3 Year 4
All amounts are in million of Dirhams
RD&E 550 - - -
Design - 650 - -
Production Cost 350 510 615
Marketing & Distribution Cost - 150 170 190
Disposal Cost - - - 125
A product Beta Complex is to be manufactured by Lambda Pharma
Laboratories (Pvt.) Ltd . The product has a lifecycle of 4 years. The costs in each
year are given below. Calculate the total lifecycle cost of this product?
39. SOLUTION
Target Costing 39
Description
Cost detail in each year of
lifecycle Total
Year 1 Year 2 Year 3 Year 4
All amounts are in million of Dirhams
RD&E 550 - - - 550
Design - 650 - - 650
Production Cost 350 510 565 1,425
Marketing & Distribution Cost - 150 170 190 510
Disposal Cost - - - 275 275
Total Lifecycle Cost of Beta Complex = 3,410
40. ABBREVIATIONS
Target Costing 40
Abbreviation Description
ABC Activity-Based Costing
CIMA Chartered Institute of Management Accountants - UK
FA Functional Analysis
GE General Electric
GM General Motors
KC Kaizen Costing
LCC Lifecycle Costing
R&D Research and Development
RD&E Research, Development and Engineering
ROI Return on Investment
TC Target Costing
VA Value Analysis
VE Value Engineering
VMTs Value Management Techniques
41. REFERENCES
Target Costing 41
Management and Cost Accounting 6/e by Colin Drury
Management Accounting 6/e by Atkinson
Target Costing and Value Engineering by Robin Cooper & Regine Slagmulder
Target Cost Management by Jim Rains
A Practical Guide to Target Costing: Processes and Techniques by Frank
Robinson
Japanese Target Costing: A Historical Perspective by Patrick Feil, Keun-Hyo
Yook, II-Woon Kim
Cima Official Terminology
42. Ahmad Tariq Bhatti
FCMA, FPFA, MA (Economics), BSc
Dubai, United Arab Emirates
For Feedback & Queries
at.bhatty@gmail.com
Target Costing 42