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
EXTRA SHIFT DECISION These decisions are concerned with whether or not a company should work for 8 hrs, 16hrs, or 24 hrs a day or week days only or weekends also.  The factors

Categories of zero base budgeting The preceding discussion will reveal that zero base budgeting is based primarily on: 1) Development of decision units 2) Identification

Explain Kaizen costing It is a Japanese method used to manage cost during a product s planning and design stages and has been used by some Japanese firms for over twenty years

Salialailai Ltd manufactures water tanks for different sizes for use by industrial customers. The company uses a job costing system, in which manufacturing overhead is applied on t

if equipment will be depreciated on a straight-line depreciation basis over a five year period with an estimated residual value, what do I do with this information in a investment

Extensions to Linear Programming In many real situations the solutions to linear programming models make sense only if they have integer values. Rounding off the linear programmi

Explain the cost According to controllability: Controllable cost: this is a cost which can be inclined by the action of a specified member of an undertaking. The organization

State overhead expenses It is to be noted that the term overheard has a wider meaning than the term indirect expanses. Overheads include the cost of the indirect material and

Advantages of activity based costing 1) It helps understanding the behavior of overhead costs and their relations ship to products services customers and market segments. 2)

Dynamic programming It is an extension which finds solutions to problems involving a number of decisions which have to be made sequentially. For example, the amount of a produc