Chapter 13: Cost planning for the product life cycle Flashcards
(21 cards)
What is the cost life cycle?
Sequence of activities within firm that begins with R&D, then design, manufacturing, marketing/distribution and customer service
What is the sales life cycle? And its components?
sequence of phases in product’s life in the market:
- Introduction of product
- Growth in sales
- Maturity
- Decline and withdrawal from the market
What is target costing?
technique in which firms determine allowable cost for product or service given a competitive market price, so the firm can earn a desired profit.
Target cost = Competitive price – Desired profit
What are the five steps in the target costing process?
- Determine market price
- Determine desired profit
- Calculate target cost: market price less desired profit
- Use value engineering to identify ways to reduce product cost
- Use kaizen and operational control to further reduce costs
Name two ways in which firms can manage costs to reach the target level?
- Integrating new manufacturing technology, using advanced cost management techniques such as activity-based costing, and seeking higher productivity
- Redesigning product or service.
What is value engineering?
Method used in target costing to reduce the product cost by analyzing the trade-offs between different types of product functionality and total product cost.
What is design analysis?
form of value engineering in which design team prepares several possible designs of the product, each having similar features with different levels of both performance and cost. Used in industrial and specialized products.
What is functional analysis?
type of value engineering in which performance and cost of each major function or feature of the product is examined.
What are cost tables?
computer-based databases that include comprehensive information about the firm’s cost drivers
What is concurrent engineering?
method integrating product design with manufacturing and marketing throughout product life cycle, also called simultaneous engineering.
What is a group technology?
method of identifying similarities in the parts of products manufactured so the same parts can be used in two or more products, thereby reducing costs.
What are the four steps of quality function deployment?
- Determine customer’s purchasing criteria and how these are ranked
- Identify product components and manufacturing cost
- Determine component’s contribution to customer satisfaction
- Determine importance index of each component.
What is quality function deployment?
integration of value engineering, marketing analysis, and target costing to assist in determining which components of product should be targeted for redesign.
What are the six benefits of target costing?
- Orients organization towards customer
- Reduces costs
- Helps firms achieve desired profitability
- Decreases total time required for product development
- Increases communication and cooperation among departments
- Improves overall product quality
Name the two factors generating costs in target costing?
- Need to develop detailed cost data
- Time demands associated with cooperation and coordination throughout the organization.
What are the six steps in the theory of constraints analysis?
- Identify constraint
- Determine most profitable product mix given constraint
- Maximize flow through constraint
- Add capacity to constraint
- Redesign manufacturing process for flexibility and fast cycle time
What are constraints in the theory of constraints?
activities or policies slowing product’s total manufacturing cycle time or limit throughput
What is a flow diagram?
flowchart of work done that shows sequence of processes and amount of time required for each
What is the throughput margin?
TOC measure of product profitability; equals price less materials cost, including all purchased components and materials handling costs.
What are the three types of pricing methods?
- Skimming: Introducing products at a high price for those willing to pay, followed by lower prices
- Penetration: Introducing products at low price to gain market share
- Value pricing: pricing based on meeting specific customer needs
What are the four methods of cost information for pricing based on?
- Full manufacturing cost plus markup
- Life-cycle cost plus markup
- Full cost and desired gross margin percent
- Full cost plus desired return on asset
