Kaizen Costing and Target Costing Essay Example | Topics and Well Written Essays - 2000 words - 1

Kaizen Costing and Target Costing - Essay Example Target Costing Process: Mostly companies use target costing to project visible cost targets for any new products they seek to establish in the market. The targets set by companies are very aggressive. The idea behind this approach is to maximize cost control and ensure that profit is as steep as possible. The process begins when a company's top management establishes its target cost for the new product. For instance a Chrysler Neon or Caterpillar Excavator. The cost estimating group in the company will break the costs for the whole product into cost targets for sub-assemblies and individual components of the product. These could be engine, the transmission seats, the steering, the gear, the covers, the paddle, the clutches etc. Mostly a gap exists between the target costs as well as the cost projections for the new product based on current designs and manufacturing capabilities of the product. The real deal lies in narrowing down the gap that exists between the cost projections and target costs through cost reduction. This is where the cross functional teams come into play. By analyzing modes of manufacturing involved, process associated with the product, the raw material requirements and the costs, they figure out the cost saving opportunities. The following paragraphs will focus on the approach applied by DaimlerChrysler and Caterpillar deployed target costing in their companies. In these companies, target costing is supported by a matrix organizational structure which has both horizontal as well as vertical functional teams.