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By. Amanpreet

Manpreet

Ekta

By.Amanpreet

Manpreet

Ekta

Cost accounting

Cost Accounting is a branch of accounting and hasbeen developed due to limitations of financialaccounting.

Acc. to CIMA, “cost accounting is classification, accumulation, assignment and control of costs.”

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Cost Control Techniques

Cost Control; The process or activity on controlling costs associated with an activity, process, or company.

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Target Costing The concept of target costing had its origin in Japan in

1960s as a result of difficult market conditions.

Target costing can be defined as a cost management tool for reducing the overall cost of the product over its products life cycle.

Target cost is the target price less target profit from the product.

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According to Copper:

Target Costing is “adisciplined process fordetermining and realising atotal cost at which a proposedproduct with specifiedfunctionality must beproduced to generate thedesired profitability at itsanticipated selling price inthe future.”

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Objectives of target costing Downsizing the cost

Making new products compatible to market needs

Motivating the employees to attain target profit.

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Principals of target costing Price-led costing

Focus on customers

Focus on design

Cross-functional product and process teams

Value-chain involvement

A life-cycle orientation

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Stages in Target Costing ProcessDefine the Product:

‘What you are selling and to whom?’ “What do they want it to do?”

Set the Target:

“ What will they pay for it” and “What should I cost to produce?”

Achieve the Target:

“How can we get there?” and “Are we getting there?”

Maintain competitive cost:

“How can we stay ahead?”

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Define the Product

Set the Target

Achieve the target

Maintain competitive cost

Steps in Target costing Process

Advantages of Target Costing Induces for innovations

Reduces cost

Increase spirit of team work

Development of right products

Enhances the probability of market success

Alings the cost of futures with customer’s willingness to pay for them

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Kaizen costing Kaizen costing is a cost reduction system.

Yashihuro Monden defines kaizen costing as "the maintenance of present cost levels for products currently being manufactured via systematic efforts to achieve the desired cost level."

The word kaizen is a Japanese word meaning continuous improvement.

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‘KAI’ means ‘Change or the action to correct’.

‘ZEN’ means ‘Good’.

that means “ change for the better”.

Kaizen is small incremental changes made for improving productivity and minimizing wastes.

Kaizen costing is applied to products that are already in production phase. Prior to kaizen costing, when the products are under development phase, target costing is applied.

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Features Of Kaizen

Widely applicable.

Highly effective and result oriented.

A learning experience.

Team based and cross-functional.

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Phases in KaizenA. Select an event.

B. Plan an event.

C. Implement an event.

D. Follow-up an event.

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Elements of Kaizen Costing

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Advantages of Kaizen Costing Kaizen reduces waste - like inventory waste, time

waste and workers motion.

Kaizen improves space utilization and product quality.

Results in higher employee moral and job satisfaction.

Teaches workers how to solve everyday problems.

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Activity Based Costing

The concepts of ABC weredeveloped in the manufacturingsector of the United States duringthe 1970s and 1980s.

ABC often identifies areas of highoverhead costs per unit and sodirects attention to finding ways toreduce the costs or to charge morefor costly products.

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Activity-based costing was first clearly defined in 1987 by Robert S. Kaplan and W. Bruns.

They initially focused on manufacturing industrywhere: proportion of the direct costs = dec. relative proportion of indirect costs= increased

Activity-based costing was later explained in 1999 by Peter F. Drucker.

He states that traditional cost accounting focuses on what it costs to do something, activity-based costing also records the cost of not doing.

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Cooper and Kaplan described ABC as an approach tosolve the problems of traditional cost managementsystems.

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Activity-based costing records the costs that traditional cost accounting does not do.For eg.:

ABC

STEPS INVOLVED IN ABC

Step 1: Identify Resources

Step 2: Identify Activities

Step 3: Identify Cost Objects

Step 4: Determine Resource Drivers

Step 5: Determine Cost Drivers

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Steps of ABC

ABC: Where to Use?

High Overheads

Product Diversity

Customer Diversity

Service Diversity

Stiff Competition

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