Cost Planning for the Product Life Cycle Target Costing, Theory.ppt
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1、Cost Planning for the Product Life Cycle: Target Costing, Theory of Constraints, and Strategic Pricing,Chapter Ten,2,Explain how to use target costing to facilitate strategic management Apply the theory of constraints (TOC) to strategic cost management Describe how life-cycle costing facilitates str
2、ategic management Outline the objectives and techniques of life-cycle pricing,Learning Objectives,3,Four costing methods discussed in this chapter: Target costing Theory of constraints (TOC) Life-cycle costing Strategic pricing All involve the entire product life cycle: Managers now need to look at
3、costs upstream (before manufacturing) and downstream (after manufacturing),The Product Life-Cycle,4,The Cost Life Cycle,“Cost life cycle” refers to the following sequence of activities: R&D Design Manufacturing (or providing the service) Marketing/distribution Customer service It is the life-cycle o
4、f a product or service from the viewpoint of costs incurred,5,Upstream Activities,Downstream Activities,R&D,Design,Manufacturing,Marketing and Distribution,Customer Service,The Cost Life-Cycle (continued),Design decisions account for much of total product life cycle costs,6,The Sales Life-Cycle,Sale
5、s life cycle is the sequence of phases in the products or services life: Introduction of the product or service to the market Growth in sales Maturity Decline Withdrawal from the market It is the life-cycle of a product or service from the viewpoint of sales volume achieved,7,The Sales Life-Cycle,In
6、troduction,Growth,Maturity,Decline,Time,Sales,Important strategic cost management issues arise in each stage of the life-cycle.,8,Target Costing,Target costing: a costing method in which the firm determines the allowable (i.e., “target”) cost for a product or service, given a competitive market pric
7、e and a targeted profit Two options for reducing costs to achieve the target-cost level: By integrating new manufacturing technology using advanced cost management techniques, (such as ABC), and seeking higher productivity By redesigning the product or service,9,Implementing Target Costing,Determine
8、 the market price Determine the desired profit1 Calculate the target cost as market price less desired profit Use “value engineering” to reduce cost Use kaizen costing and operational control to further reduce costs 1For example, expressed as a percent of sales dollars,10,Value Engineering,Value eng
9、ineering (step 4): Analyze trade-offs between product functionality (features) and total product cost Perform a consumer analysis during the design stage of the new or revised product to identify critical consumer preferences,11,Value Engineering (continued),For firms that can add and delete feature
10、s easily, functional analysis (examining the performance and cost of each major function or feature of the product) can be used Benchmarking is often used in this step to determine which features give the firm a competitive advantage Goal: provide a desired level of performance without exceeding the
11、 target cost,12,Value Engineering (continued),Design analysis: Useful when the firm that cannot add and delete features easily The design team prepares several possible designs of the product, each having similar features with different levels of performance and different costs Accountants work with
12、 the design team to choose one design that best meets customer preferences while not exceeding the target cost,13,Value Engineering (continued),Other cost-reduction methods: Cost tables: computer-based databases (costs and cost drivers) Firms that manufacture parts of different size from the same de
13、sign can see the difference in cost and material usage for each size Group technology is a method of identifying similarities in the parts of products a firm manufactures so the same parts can be used in two or more products, thereby reducing costs,14,Kaizen,Kaizen (step five): using continuous impr
14、ovement & operational control to reduce costs in the manufacturing stage of the product life-cycle Achieved through: Streamlining the supply chain Improving manufacturing methods and productivity programs Employing new management techniques Used extensively in the time period between product redesig
15、ns,15,Benefits of Target Costing,Increases customer satisfaction (design is focused on customer values) Reduces costs (more effective and efficient design) Helps the firm achieve desired profitability on new and redesigned products Can decrease the total time required for product development Reduces
16、 “surprises” of the type, “We did not expect it to cost that much.” Can improve overall product quality Facilitates coordination of design, manufacturing, marketing, and cost managers throughout the product cost and sales life-cycles,16,Target Costing Example,HPI is performing a target costing analy
17、sis of a hearing aid (HPI-2), which sells for $750 (cost = $650) and has 30% of the market. However, a competitor has introduced a new model that incorporates a computer chip that improves quality. Its cost is $1,200. A consumer analysis indicates that cost-conscious consumers will remain loyal to H
18、PI as long as price does not exceed $600. HPI wants to maintain the current rate of profit, $100 per hearing aid., HPI must therefore reduce its cost to $500 ($600 - $100) to meet its profit goal,17,Target Costing Example (continued),Design analysis options (see page 366 in your text): Alternative A
19、: reduce R&D, replace parts, and change inspection proceduresavings = $150 Alternative B: replace parts and change inspection proceduresavings = $150 Alternative C: increase R&D to develop a computer chip type hearing aid, replace parts, change inspection procedure, renegotiate new supplier contract
20、savings = $150,18,Target Costing Example (continued),Management chooses alternative C because: Of the increase in R&D expenditures The increase in R&D will improve the firms competitive position in the future The move is strategically important: the new technology may be dominant in the future,19,Qu
21、ality Function Deployment (QFD),QFD: the integration of value engineering, marketing analysis, and target costing to assist in determining which components of the product should be targeted for redesign or cost reduction Four steps in QFD: Determine & rank the customers purchasing criteria for the p
22、roduct Identify the components of the product and the cost of each component Determine how the products components contribute to customer satisfaction Determine the importance (value) index of each component,20,QFD Example: Step 1,21,QFD Example: Step 2,22,QFD Example: Step 3,23,QFD Example: Step 4,
23、24,QFD Example: Conclusion,25,Measuring and Improving Speed,Many strategic initiatives undertaken by firms today focus on improving the speed of operations Manufacturing cycle time (lead time or throughput time) is the amount of time between the receipt of a customer order and the shipment of that o
24、rder Start and finish time of the cycle can be defined in several ways Example: the start time could be defined as the time raw materials are ordered, and the finish time the time that production is completed,26,Measuring and Improving Speed (continued),Manufacturing cycle efficiency (MCE) is define
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