Ch 3 Flashcards
(21 cards)
Target Cost
Target cost estimate = Competitive market price - desired profit margin
Target costing
To reduce life-cycle costs of products whilst ensuring quality and customer requirements are sustained
Problem with traditional costing
Accountants categorise costs and revenues into accounting periods which does not allow for easy understanding of the profitability of individual products over their entire lives
Life cycle costing
Monitors/records costs by product over the different phases of the products life to identify the profitability of the product
Customer life cycle costing
Costing that collects the costs of the customer (cost object) over their lifetime, irrespective of accounting years. It allows for the total profit of each customer to be measured.
When to use customer life cycle costing
Useful for professional service funds where costs are driven by chargeable time
Non-Chargable set up costs
For customers engaged on a one-off basis there will be a non-chargable set up costs before each assignment is agreed. These should be reflected in the fees charged for the service that is yet to be provided.
Where a continuous rate is agreed, discounted fee rates may be applied to recognise the reduced amount of set up costs
Value chain analysis
A framework within which the activities within an organisation can be analysed, needs to be a consistent approach to enhance profitability
Value chain
The sequence of business activities by which, from the perspective of the end user, value is added to the products and services produced by an entity.
Cost leader strategy
Keep costs lower than competitors
Differentiation strategy
Emphasis on setting your products apart so that customers are willing to pay for its individual nature
Extended value chain system
aka value system, takes into account the value chains of the suppliers and distributors of the firm as well
Value analysis and functional cost analysis
Techniques that focus on reducing costs over time
Value analysis
A systematic examination of factors that affect the costs of a product to devise a means of achieving the specific purpose most economically, at the required standard of quality.
The market price that can be charged is not assumed to be fixed
Cost value
the cost of making and selling
Exchange value
Market price
Use value
the function or purpose that it fulfils
Esteem value
prestige of ownership
Functional cost analysis
An analysis of the relationships between product functions, their perceived value to the customer that can be added in cost effective ways - linked to QFD
Aim of FCA
Improve profits by reducing costs and/or identifying new features that are attractive to the customer that can be added in cost effective ways
Quality function development (QFD)
A method used to identify critical customer attributes and to create a specific link between these attributes and design parameters. Matrices are used to organise information to help markets and design engineers answer 3 primary questions.
