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TargetCosting Nissan

Target costing is a management tool that: 1) Determines product costs based on the desired selling price rather than historical costs. 2) Aims to reduce product costs over the lifetime of the product through collaboration between divisions and suppliers. 3) Supports long-term profit planning by encouraging innovation to meet target costs.

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BHAVYA MERANI 1723107
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88 views10 pages

TargetCosting Nissan

Target costing is a management tool that: 1) Determines product costs based on the desired selling price rather than historical costs. 2) Aims to reduce product costs over the lifetime of the product through collaboration between divisions and suppliers. 3) Supports long-term profit planning by encouraging innovation to meet target costs.

Uploaded by

BHAVYA MERANI 1723107
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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TARGET COSTING

TARGET COSTING
• Product cost is determined from the price
• A management tool to reduce products cost over its
lifetime
• Long term profit planning
• Necessity of supplementary costing techniques to lower
product costs
• Encourages company division and supplier interaction
• Encourages innovation

Strengths • Enhances costing control at each step of the products life


cycle
• Improves probability of meeting the product life-time
profitability

• Increases product development cost


• Encourages short-cuts in engineering processes

Weaknesses •
•
Increases time to market
Product costing prediction efficiency lessens over time
Nissans Costing System
• Full costing system
• Direct costs are traced
directly to the products
• Direct manufacturing costs
• Manufacturing supplies
• Research & Development
• Machine depreciation
• Indirect Manufacturing costs
• Transportation
• Maintenance
• Depreciation
• Corporate expenses
Primary Uses

Basis for estimating future profitability in long range strategic plan

Cost control purposes, ensuring that across the production life of the
product its target cost is maintained

Help select product mix

Identify unprofitable variants that are candidates for discontinuance


Embedded in a team environment, cross-functional process (concurrent design).

Assigning individual responsibility

Reduces product development time and cost by reducing required design changes

ADVANTAGES
Flexible way of determining profits

The target costing system is deployed at a time, the product and process design
phase, when design choices can have a maximum impact on a product’s cost.

Includes representatives from their suppliers on the design team of components


Huge pressures on design team

Organization conflicts

DISADVANTAGES Shifting the company’s motivation from products performance to products cost

Target cost depend upon market research and historical data. Inventing an
innovative product for the first time, no benchmarking/comparison available.

Confusion on the market


Do you think Nissan will be able to support
the system?
• Yes, because most of the costs are traceable
• Of total manufacturing costs
• 85% are directly traced to products
• 10% charged to production departments then to products
• 5% service and administrative costs

• Nissans costing system is continuously undergoing modification by


focussing on
• Tracing costs directly to the product
• Use appropriate allocation basis
• Increase visibility and collaboration with parts and service suppliers to reduce costs

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