Target Costing Is A Tool Of The Cost Management Accounting Essays

Target Costing Is A Tool Of The Cost Management Accounting Essays Target Costing Is A Tool Of The Cost Management Accounting Essay Target Costing Is A Tool Of The Cost Management Accounting Essay Traditional criterion bing method follow general administrative, estimation of merchandise, distribution costs into consideration. In contrary, mark costing is demoing a more positive attack to pricing which is the pricing are consider prior to the production. For case, traditional bing set up a monetary value through identifies the cost based on the design of costs and adds a markup but in contrast, puting monetary value is the first measure of the mark costing. After puting a monetary value, minus the mark income and will making a cost. Target bing cut down the costs during the planning and design phase of the merchandise life rhythm since largely of the merchandise costs is identifies in the mark costing. Target bing reduces bing in the production phase and allocates more of the entire costs to the development at the development phase. Material demand planning, entire quality control, just-in-time are used in the cost cut downing procedure. Target bing method is suited for assembly oriented industries used which is medium to little volume production. hypertext transfer protocol: //maaw.info/ArticleSummaries/ArtSumSakurai89.htm Case survey The followers of the instance survey is show the procedure of determined mark bing utilizing production and cost figures PCBM, a Silicon Valley PCB maker, is offered $ 50 per unit for 100,000 units of a multi-layer panel merchandise by an electronic maker. Return on gross revenues of the PCBM s return on gross revenues ( ROS ) rate is 25 per centum, on this offer the coveted return is $ 1,250,000. Sum of the offer: $ 50 x 100,000 units = $ 5,000,000. Desired return: 0.25 ten $ 50 = $ 12.50 per unit. Offer: $ 12.50 x 100,000 = 1,250,000. Gross saless monetary value coveted return = allowable cost for production $ 50,00 $ 12,50 = $ 37.50 The allowable cost for this production of 100,000 units is $ 37.50 per unit, or $ 3,750,000 for the offer. The estimated cost Idaho calculated by the cost direction squad as $ 42.00 per unit, or $ 4,200,000 for the offer. The cost was estimated based on two solder mask sides requested, four beds petitions, board length, five images per panel, board-width, one constituent fable side, estimated output rate of 85 % , panel size, stuff cost per panel of $ 20.00. The impact of accepting the offer on the production program and the cost of entire production for the period was besides considered. The different between allowable cost ( $ 3,750,000 ) and the estimated cost ( $ 4,200,000 ) for the offer, which is adopted as the mark cost decrease: $ 4,200,000 $ 3,750,000= $ 450,000 Strive to extinguish the different of $ 450,000 started with the VE activities. VE activities should concentrate on the defect rate and stuff handling and buying after careful assessment for long hr by production supervisors, cost direction employee, procedure and merchandise applied scientists Propose betterment in public presentation by 35 % , which is estimated to cut down unit cost by $ 2 after a series of surveies and analyses of stuff garbages and other types of defect were performed. But, since the new mark bing induced direction program has been accepted by all supervisors and directors of the works suggestion were sharply implemented by the procedure and countries involved. Improvements in stuff handling were centered on cut downing stuff traveling distances between the point of usage point and having the bringings. Several moves were analyzed to cut down the distances. Simultaneously, the buying group of PCBM entered a long dialogue procedure with the providers, in order to carry them to take down their monetary values. Consequence of the betterment activities was cut downing of another $ 1 per unit cost. The combined decrease in cost per unit of $ 3, a sum of $ 300,000, brought the cost to $ 3,900,000. Although still higher than the allowable cost which is $ 150,000 ( $ 4,200,000 $ 3,900,000 ) , but the top direction thought this cut down cost is considerable. Further action Management asked the selling squad to look back the $ 50,00 merchandising monetary value after the successful execution of the mark bing undertaking. Since the client was satisfied with the quality of the merchandise, they were antiphonal to the petition by PCBM for a reappraisal of the $ 50,00 monetary value. The client s representative tried to warrant the just degree of the current monetary value by indicating out that no check home base border was required, which would cut down fabrication costs. Since PCBM had already designed and implemented an activity-based costing ( ABC ) system, it was instead easy to show the cost impact of each constituent. PCBM s ABC system, which had five procedure centres, indicated the undermentioned costs of options: The cost of solder mask option: $ 2,00 The cost of component fable option: $ 1.00 Since the client s PCBM did nt necessitate tab plating, so the ABC system response that no cost to charged for the check plating option. This helped PCBM earn credibleness from the client sing the monetary value quotation marks and at the terminal the client agreed to see a monetary value addition in the close hereafter. The Real Weapon The existent power of mark costing is that it allows companies to successfully actuate employees and implement cost direction action programs. Target costing is a disciplined attack to pull offing costs and bettering procedures and merchandises. Target costing, as briefly illustrated here, is besides really compatible with the emerging ABC, which can supply necessary cost information for implementing mark costing. And aim costing can be as effectual in U.S. industry, as it has been in Japan. hypertext transfer protocol: //www.nysscpa.org/cpajournal/old/14979931.htm