Cost driver analysis-target costing, Managerial Accounting

Cost driver analysis

Cost drivers are factors, which determine the costs of an activity i.e. a change in the cost driver will cause a change in the level of total cost related cost object. The cost drivers can either be volume based or transaction based. The company must therefore understand its cost drivers so as to control costs.

Target costing

This is another contribution to strategic management accounting. This is an approach to product pricing widely applied by Japanese companies and now being given a lot of attention in the USA and Europe. It is determined by exterior market factors.

A target market price is recognized by marketing management former to designing and introducing a latest product. This target price is put at a level which will allow the company to attain a desired market share and sales volume. A preferred profit margin (target profit) is then deducted to determine the target maximum allowable product cost (target cost).

Product costs are computed based on design specification and compared with the target cost. If the projected product cost is above the target cost then product designer’s focus on it becomes cheaper to produce. Manufacturing engineers also focus on methods of improving production efficiency so that the target cost can be achieved even after a period of one to two years. A team of designers, engineers, marketing and production personnel, together with the management accountant, concentrate on producing a product that meets the target cost requirement. The role of the management accountant is to produce cost estimates for the various projected product designs, measure and monitor product costs once the production process begins.

Posted Date: 12/8/2012 6:02:28 AM | Location : United States

Related Discussions:- Cost driver analysis-target costing, Assignment Help, Ask Question on Cost driver analysis-target costing, Get Answer, Expert's Help, Cost driver analysis-target costing Discussions

Write discussion on Cost driver analysis-target costing
Your posts are moderated
Related Questions

Describe the Principles of cost accounting Principles of cost accounting: The fundamental principles of costing are identical and are given below:   1. Cost is related to

Determine the Traditional classification a) Balance sheet or position statement ratios: balances sheet ratios deal with the relationship among two balance sheet item e.g., th

Simple Queues A simple queue has the following characteristics; 1) There is a simple service channel 2) There are ‘discrete’ customers e.g. customers in a bank, or aircra

Disadvantages of incremental budgeting a) Incremental budgeting suppose activities and method of working will continue in the same way b) No incentive for developing their d

State the Opportunity cost The net selling price, rental value or transfer value which could be obtained at a point in time if a particular asset or group of the assets were to

What Procedure are followed in kaizen costing In brief kaizen costing involves setting a new cost reduction target every month. The difference between the target profits and th

COST-VOLUME PROFIT (C-V-P) ANALYSIS INTRODUCTION You can employ cost-volume-profit analysis to examine the natural relationship among cost, volume, and profit in pricing decision

Suppose the spot price for Euro is $1.30, the futures price for delivery in 6 months is $ 1.29675. Assume that the 6 month borrowing/lending rate in Euro is 1.5 percent (annually,