Cost Management

Business

Quiz 13 :
Cost Planning for the Product Life Cycle

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Quiz 13 :
Cost Planning for the Product Life Cycle

Target Cost: Target costing is one of the techniques that is used in product life cycle to set a cost that gives a desired profit. Therefore, the target cost is the allowable cost set for a product or a service from the competitive market price. Target cost can be expressed in terms of a formula: img Target Costing: Target costing is a management tool that is used to minimize the total cost of the product or a service over the total cost involved in the complete life of a product or service. In other sense it can be termed as setting a price so that cost is minimized, and a desired profit can be earned with specific functionality and without compromising the quality of the desired product. In target costing, all the costs of the proposed product like product design, customers' expectations, specifications, and other R D expenses can be known before setting the selling price. Hence, it improves the product quality and helps in cost reduction.

Target costing: It is the concept used by the company to set target cost. Under the target costing firm determine the allowable cost that is target cost for the product or services. Target cost is determine to subtract desired profit from the market price or the competitive price. It is an approach to determine the product life cycle cost. These are the two methods which help to reduce product cost in order to achieve the target cost such as: -Action taken to integrate the new manufacturing technology with the advanced cost management technique like activity based costing which result to higher productivity. -Efforts taken to redesign the product or service by the concept of value engineering so that product available at the reduced cost and with more value. Target costing is not just a costing method but it is management technique under which prices are obtained by the market conditions after considering various factors like Homogeneous product, Level of competitions, Either no or low switching cost for the end customer. Target costing is helpful to the management in the various ways. And the firm like auto manufacturers, software developers, and consumer product manufactures used to design the product by considering target costing. There are many firms like Toyota, Honda motor company, Intel, many firm using target costing to set the target cost as per the market factor consideration by using advanced and modern technology. Consumer electronics industries In the consumer electronics industries value engineering is the concept which is widely used on the ground that more value to the customer make more satisfaction and help to generate more revenue to the organization. Value Engineering: It is basically a systematic approach to improve the value of the goods or product or services. It is defined as ratio of function of cost which means to reduction of the cost. Value of the product can be increased either increased the function or reduction in the cost of the product so that goods are available to the customer at the reasonable rate. The basic aim is to add or delete the function as per the preferences of the consumers. Value engineering concept is used in the target costing to reduce the product cost in such a way without effecting the bases of the product but to add value to the product by applied improved and advanced technology through value engineering. Under this also efforts to be taken to proper care of the customer preferences with the function of the new and improved product. The concept of value engineering is used under the product of -Electronic items -Computer software -Camera and video equipment And others Specialized equipment manufacturing industries Under this efforts taken to redesign the product so that product available at the lower cost with more advanced technology. Under this target costing adopts five steps to make tradeoff between the function and the cost like: -First find the market price of the product -Then determine the desired profit -Then find the target cost at the market price with less desired profit -Adopt value engineering to identify the reduce product cost -Finally, using of kaizen costing technique to further control over the cost. Application of the value engineering is applied to add value to the product within the framework of target cost, which is set by the management is the basic aim of target costing under value engineering concept. Under this product are design in such a way which help to the customer at easier way with advanced and improved product at the reasonable price. -The basic of using value engineering in the target costing is to reduce the product cost. -To provide the product to the customer at more value and function. -It help to meet the requirement of the customer specification. -It adopts the new and the advanced technologies in the product to make them easier. -Customer obtain the product at the reasonable rate with more advanced technology. -Under this concept product are design in such a way to achieve the target cost of the company on one hand and also not compromising with the quality of the product, rather it add value to the product. -The aim of applying value engineering in the target costing is to control the cost under target with no effect with the quality of the product. -Under this product are design in such manner it meets the requirement of the customer by less bulky, less cost, attractive, easy handle and more. So concept of value engineering applied to control the cost under target. The aim of the management to control over the cost by considering these factor by which either management have full control or less control in setting the price of the product. These are the various use of target costing which the firm applied and take advantage of the concept in the following manner: -Target costing concept used by the firm in order to enable management from proactive cost planning. -It's also aim to reduction in the cost of the product -Under this concept company is price taker rather than price maker. -Under this concept minimum desired profit margin is already included in the target selling price. -It is the part of management to focus on the cost reduction and the cost management. -It help the management to take competitive advantage by product innovation and improvement in the process. -Target costing aim to give more value to the customer about product at the reduced price. -Under the target costing company make the product according to market driven that is as per the customer specification. -Target costing used by the firm in order to take advantage of the economies of scale in the long term by large production.

Sales life cycle Every company is known for the sale of the product and more sales result to more revenue to the organization. It is a sequences of various phases in the product or service life. Sales set the way for the firm, there are various steps or phases involved in the sales life cycle. Every product have different cycle some companies have more sale cycle and some are less depends upon the nature of the product, technology used, cost factor involvement, pricing factor of the product, and the competitors strategy. All these depends upon the life cycle of the sales. Phases of sales life cycle There are various phases of the sales life cycle like Introduction: Under this stage product or services are introduced in the market, it is the initial stage for the product that is introductory stage. Growth: This stage consist of growth in the volume of the sales, it means companies product are like by the people of the country. Maturity : At this levels sales at the peak level that is company achieving the highest position with maximum market shares. Decline: It is final stage which comes after maturity that is sales decline by passing of the time. At this stage sale fall due to various reason and company find the reason to decline the sales. Difference between sales life cycle and cost life cycles img