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 the estimated profits is being analyzed and activities are being designed to helps reduce this gap. If this cost reduction target is not achieved further efforts will be channeled to study this difference in hop of designing ways of getting closer to the target. Throughout the whole manufacturing process whenever necessary. Everyone in the whole department will be involved in kaizen costing in one way or another.
The techniques used for kaizen costing involve using a sales plans for the next business term and cost budgeted based on incurred cost form previous term.
The whole process of kaizen costing is briefly summarized a few steps:
1) the company deaws up its sale plan for the next business term. Here it comes up with proposed amount of sales that it hopes to deliver. From this planned sales volume the company will set its target profit based on certain percentage using data from previous terms the planning group will use standard costing to estimated the costing likely to be incurs for the planned production. Basically cost incurred in areas such as direct labor and direct material during previous term will be used as a reference for standard cost. Form then estimated cost can be calculated. Thus estimated profit will be derives. At the end of this planning stage the difference between the targeted profit and the estimated profit is actually the company's target profit improvement gap. This difference is what the company hopes of narrow.
2) Next the company will focus on how to narrow this gap in order to achieve its targeted profit hence the company must now set the costing amount that it hopes to reduce I . e the kaizen costing target amount this amount is actually serives at by derived on some percentage allocated to different department or stages of the whole production cycle. The kaizen costing will be applicable to most cost item except for fixed cost. Every department will be assigned a kaizen costing reduction target to achieve. The managers and the accounting department arrive at this target usually after much planning and evaluation. The target should be one that is reasonable and achievable since it is a consensus by both the operation department and accounting department.
3) All the activities will be evaluated carefully and changes will be planning to reduce costs. Reallocation of resources may occur and activates may be streamline to reduce the cost incurred. All these kaizen costing activities are being carried out so as to achieve the target cost set earlier.
4) At the end of each month the cost reduction result that is being achieved is checked against the target. Any differential is being resulted differential should not be attribution to failure by the department to reach the kaizen costing target these certain factors include design changes during the business term buyer request for additional should not be attributed to failure by the department to reach the kaizen costing differential can be expected. Thus it is important to not to leave out the importance of these factors. Adjustments must be made against the figures and amounts to reflect.
5) After analyzing the differential the cost management team must come up with other improvement or kaizen costing to minimize this differential continuous efforts will be concentrated to bring the cost reduction results closer to the kaizen costing that is being set. Cause and effect relationship are being studied in search of suitable action.
Kaizen costing originated from Japan and is most extensively used in Japanese automobile industry. In Japanese automobile company the bulk of the cost is actually variable and not fixed costs are not as applicable to Japanese company. Therefore they seek ways on kaizen costing which focus more on searching for methods to reduce cost in the activities or production stages.