P2 - C3 - Cost Planning Flashcards
(13 cards)
What is target costing?
A maximum production cost target set by the organisation
What is a cost gap?
Target cost gap = Estimated product cost - Target cost
What ways can you close the gap?
Value engineering
Using cheaper materials
Using cheaper labour
Increasing volume production
Why do we use target costing?
Avoid unnecessary features
Develop product designs
Development of production processes
Target costing in service industires
Identify the needs of customers
Produce goods that meet these needs
Problems with target costing in service industries
Measured in performance not tangible goods
Outputs differ from job to job
Services are consumed and cannot be stored
Accurately calculating the target cost can be difficult
Porters value chain
Customers will only be willing to pay profit margin if the organisation is providing value by meeting their needs
Profit margins can be increased by adding value
Primary activities of the value chain
Inbound logistics - Suppliers
Operations - Transformation of inputs into outputs
Outbound logistics - Collecting, storing and distributing
Marketing and Sales - Informing buyers about products
After-sales service - Keeping products or services working effectively
Support activities of the value chain
Infrastructure
Technological development
Human resource management
Procurement
What can the value chain be used for?
Examine the organisation
Drive competitive strategy
Understand links between processes
Analyse competitors
What is the value analysis process?
Establish consumer needs
Investigate alternative courses of action
Decide an alternative
Evaluation
Define value engineering
A product is designed with a value analysis in mind
Define functional analysis
Reducing costs and maximising profits
