target costing - Target Costing If you cannot find the time...

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1 Target Costing If you cannot find the time to do it right, how will you find the time to do it over?
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2 General Concept Target cost is the cost that can be incurred while still earning the desired profit Selling price – desired profit = target cost The customer sets the price Profit must be achieved through cost control
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3 Target Costing Characteristics Contradicts the traditional approach: design product, determine cost, set price Intense customer focus What do they want? How much will they pay for it? Can we make a profit on it? Want answers to these questions before committing to the project
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4 Target Costing Characteristics Cost control from the beginning 70-90% of costs are committed to at the design stage Focus on product and process design to engineer out costs from the beginning Saves costly changes later on
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5 Target Costing Characteristics Product, manufacturing process, delivery process designed simultaneously Ensures features customers demand, but within acceptable cost parameters Eliminates the temptation to add costly features Customers may not value the added features Forces consideration of manufacturability Reduces the need for subsequent changes
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6 Target Costing Characteristics Cost control at all phases of the product life cycle Design Production Delivery/setup Customer’s cost of ownership Emphasizes future sales instead of current cost savings Service and repair Disposal and recycling
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7 Cross-Functional Team Marketing Design/engineering Manufacturing Purchasing Including suppliers Distribution Service/support Cost accounting Finance Legal
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8 Target Costing Process Two stage process Establish the target cost Market research Product planning, concept development stages Achieve the target cost Value engineering, continuous improvement Design stage Continuous improvement in later stages
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9 Establishing the Target Cost Determine the product and its market Who is the target market? What do they want? What do competitors offer? Introduce concept or prototype Evolutionary or revolutionary? Refine until it meets customer needs
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10 Establishing the Target Cost Determine the selling price Must be acceptable to the customer Must be able to withstand competition Techniques Existing price +/- value of features added or deleted Consensus of focus group Price predicted to achieve a desired market share
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11 Establishing the Target Cost
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target costing - Target Costing If you cannot find the time...

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