Accounting 代写assignment Target Costing Is A Tool Of The Cost Management
Traditional standard costing method adopt general administrative, estimate of product, distribution costs into consideration. In contrary, target costing is showing a more positive approach to pricing which is the pricing are consider prior to the production. For instance, traditional costing establish a price through identifies the cost based on the design of costs and adds a markup but in contrast, setting price is the first step of the target costing. After setting a price, minus the target income and will reaching a cost.
Target costing reduce the costs during the planning and design stage of the product life cycle since mostly of the product costs is identifies in the target costing. Target costing reduces costing in the production stage and allocates more of the total costs to the development at the development stage. Material requirement planning, total quality control, just-in-time are used in the cost reducing process. Target costing method is suitable for assembly oriented industries used which is medium to small volume production.
The following of the case study is show the process of determined target costing using production and cost figures
PCBM, a Silicon Valley PCB manufacturer, is offered $50 per unit for 100,000 units of a multi-layer panel product by an electronic manufacturer. Return on sales of the PCBM’s return on sales (ROS) rate is 25 percent, on this offer the desired return is $ 1,250,000.
Amount of the offer: $50 x 100,000 units = $ 5,000,000.
Desired return: 0.25 x $50 = $12.50 per unit.
Offer: $12.50 x 100,000 = 1,250,000.
Sales price – desired return = allowable cost for production
$50,00 – $12,50 = $37.50
The allowable cost for this production of 100,000 units is $37.50 per unit, or $3,750,000 for the offer.
The estimated cost id calculated by the cost management team as $42.00 per unit, or $4,200,000 for the offer.
The cost was estimated based on two solder mask sides requested, four layers requests, board length, five images per panel, board-width, one component legend side, estimated yield rate of 85%, panel size, material cost per panel of $20.00.
The impact of accepting the offer on the production plan and the cost of total production for the period was also considered.
The different between allowable cost ($3,750,000) and the estimated cost ($4,200,000) for the offer, which is adopted as the target cost reduction:
$4,200,000 – $3,750,000= $450,000
Strive to eliminate the different of $450,000 started with the VE activities. VE activities should focuses on the flaw rate and material handling and purchasing after careful appraisal for long hour by production supervisors, cost management employee, process and product engineers
Propose improvement in performance by 35%, which is estimated to cut down unit cost by $2 after a series of studies and analyses of material scraps and other types of flaw were performed.
But, since the new target costing induced management plan has been accepted by all supervisors and managers of the plant suggestion were aggressively implemented by the process and areas involved.