ijcrb.webs.com INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS APRIL 2013 VOL 4, NO 12

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1 Reengineering the system of standardization of costs by using Target Costing and Kaizen Costing Prof. Dr. Hassan Zaki Damascus University Irbid National University Abstract In the new manufacturing environment are many changes emerged from the rapidness of the change of information technology and communications in addition to the increasing the competition and these changes formed some pressures on the administration economic facilities in order to conduct changes in their administrative and accounting systems corresponding to the environment requirements of the new works and in order to meet the new needs of the administration like the information helping in achieving their strategic purposes. Responding to that academics and professionals sought to develop techniques fitting the new reality new entrances emerge from them in accounting costs which many styles of the accounting work and its future techniques are based on in the light of the current entrances and one of those techniques is Target costing and Kaizen Costing. Keywords:The system of standardization of costs, Target Costing, Kaizen Costing The problem of the research: Whereas the standardization system of costs is a main product of the required information in order to take decisions and it is an approach of planning and control in addition to evaluation of performance, so it is exposed to many critics that were popular in the end of the eighties of the twentieth century because of the new variables in the new manufacturing environment represented in flexible manufacturing systems(fms), computer integrated Manufacture (CIM), Time based management, Total quality management (TQM) and Just In-Time (JIT). The variables of the new manufacturing environment explained the fact of the inability of the standardization costs system in achieving the goals of the COPY RIGHT 2013 Institute of Interdisciplinary Business Research 153

2 strategic administration and raised many questions that formed the problem of the research that are : - Is measuring the deviations of the real performance from the planned performance good to evaluate the environment of production with transferring the attention from the control of production to analysis of the activities and control them? - Is measuring the deviations of wages still necessary in spite of reducing the rate of the manpower in the new manufacturing environment? - Do the systems of costs still present a subjective distribution and determination of the terms of the indirect industrial costs (additional ) and standardize them with transferring from control costing to programs of continuous improvement and development in order to reduce costing? - Are the reports of control costing in spite their significance with transferring from attention to employing standards of performance and with developing the measures of performance in the new manufacturing environment? - Is the job classification of costing elements good in the light of the interference of job areas emerged from using information technology and the new form of the relations among the economic facilities participating in the net group forming the value chain? Purposes of research : Purposes of research representing in the following : - Showing the fact of inability of standardization of costing in achieving the purposes of the strategic administration corresponding to the new works environment. - Showing alternatives of development of standardization costing system. - The possibility of development of the standardization costing system by using target costing and Kaizen Costing. First : The standardization costing system and its development alternatives : Measuring costing regarding standardization purposes is based on the following considerations: (1) COPY RIGHT 2013 Institute of Interdisciplinary Business Research 154

3 - Collecting resources and directing them towards the ideal use and translating the planned performance in a quantitative and critical way by combining the costing plan with the costing unit by using the standardized costing and making costing subjective to a planned conduct. - Developing standards regarding costing each element of the costing elements in the light of the current expected standard that takes into account the natural employment allowances reflecting the degree of the best performance. - Measuring the standardized costing in the light of the probable relation of the technical standard (quantitative or normal units of each costing element) and the financial standard (estimated and cash units regarding possessing the different costing elements, which are expected in the duration of measure and in the light of the normal circumstances of the market ). - If this measurement is important of production planning and control it,it is not good for the economic or real measurement purposes, so the test comparison purposes among alternatives that cause costs fitting the comparison decisions related to future. - The base of the measurement of costing regarding the real or economic measurement purposes must be based on the non comparison costs ( Avoidabl cost, sunk cost )which are not omitted in the case of conducting the comparison and the test among the available alternatives of the management of the facility in addition to the comparison costs and the Alternative or opportunity cost. - The system of the standardization of costing is not able to achieve the purposes of the new strategic management due to many causes.(2) - The system is quiet and inflexible because it established on the production of large volumes of typical products having specific technical qualities in the light of stable technology and environment of businesses tending to relative stability and silence. - In addition to its attention to control financial performance and carelessness of the employing performance standards. - The system does not care the variety of production ways and the variety and complexity of the qualities of the products and transferring the attention from control production to analysis of the activities and control them and from control costing in the employment period to COPY RIGHT 2013 Institute of Interdisciplinary Business Research 155

4 continuous improvement and development programs aiming to reduce it. - The system does not allow to develop integrated strategy seeking to coordinate the processes of the facilities having the combined activities concerning the concepts and bases of the value chain aiming to reduce costs, risks, and the time of achievement in each circle of the circle of the chain starting with production,provision and delivery of the necessary things of the activity including the production activities and marketing in addition to the logistic activities until the product reaches to the consumer which contributes in greatening the achieved values in the all activities which form the chain. - The system does not assist the facility achieve a four- dimension purpose (quality improvement, reducing costing, maintain the environment and the commitment to the competitive market prices ) which guarantees its survival and continuity in the market. - Seeking to treat the infectivity of the standardization costing system in its current status accounting discipline states a set of alternatives aiming to develop this system or replace for another system and some of these alternatives are the following : - Working with the system of gradual standards requiring more than one level of the standard as an entrance to eliminate the quality of consistency in the standard with reporting its gradualism according to what is expected to achieve in the field of reducing costing. (3) - combining the standards with the chain generating value ( Value Chain ) in the way that the facility can identify the weaknesses and the strengths in its local environment and can identify the opportunities and the threats in its exterior environment by combining the standard costing with each circle of the value chain s circles.(4) - linking standards to the costing of product life cycle as an entrance to standardize the costing of the various alternatives of design and choosing the best one seeking to satisfy the customers and as an entrance to standardize the costing of the production alternatives and choosing the best seeking to reach or obtain the productive efficiency with the necessity of attention to the standardization of costing of research and development and post selling costs in addition to the standardization that allow to study the benefits of the customer. - linking the standard costs to the analysis of the major processes of the facility as a set of activities which form each process and determining COPY RIGHT 2013 Institute of Interdisciplinary Business Research 156

5 the activities added to the value and searching for support mechanisms of the costs by determining the major factors affecting costs and working on developing them in addition to trying to identify how to eliminate the non added value activities in the light of the expected effects in the case of the elimination and what is imposed because of this like redrawing the map of processes flow.(5) - Iinking the standard costs to the target costing and to the Kaizen Costing. And in the light of the previously mentioned alternatives the researcher will pay attention to the target costing and the Kaizen Costing regarding the system of costing standardization. Secondly : Re engineering the system of the standardization of costing by using the entrance of the Target costing and Kaizen Costing. 1. The concept of the target costing and the Kaizen Costing. The target costing entrance appeared in Japan in 1973 as a tool of developing some American approaches, especially, the Value Engineering in order to let the Japanese industries earn competitive characteristics concerning costing and prices and quality aiming to encounter the variables of the new industrial works environment in order to create a real fall in the costing of the product s planning. the Japanese named the model value engineering after they developed it with the target costing as one of the tools of the management of costing or cost containment in order to guarantee a real improvement in the efficiency of the performance during the product life cycle and to guarantee planning costing and control it over the product life cycle seeking to support the competitive ability of the facility regarding satisfying consumers and achieving a profitable plan. in accordance with that, it is possible to identify the content of the entrance of the target costing by a set of the following characteristics that confirm that it is :(6) 1. the specific costing in advance in the stage of designing the product and developing it which must not be exceeded by the real costing of the product.the facility must modify the structure of the product until reaching to the design which is within the target costing that becomes as a standard of costing to determine the domains of the deviations of the real COPY RIGHT 2013 Institute of Interdisciplinary Business Research 157

6 performance as an entrance to create a real drop in the costing and to achieve an improvement and development of the product. 2. one of the tools of the strategic cost management. 3. the activity which aims to reduce the cost of the current and new products in the all stages of the productive processes starting with product planning and ending with service of post selling. 4. the system is able to plan the profits and to manage costing and to certify the competitive selling prices and the choices of the customers and the total value chain aiming to develop the product in its earlier phases. Depending on what was previously mentioned, it is possible to make a comparison between the target costing and the Kaizen Costing in the following table : (7) Differentiation Standard Target Costing Kaizen Costing Stages of product life cycle Purpose Used in planning and designing stages of the product Continuous reduction of the cost of product planning and designing Used in the stage of producing the product Kaizen Costing with creative efforts Reducing cost Structural Drivers Executive Drivers COPY RIGHT 2013 Institute of Interdisciplinary Business Research 158

7 Drivers before starting production after production starting Affecting Factors The suitable price to customers and the appropriate profit for the product Supporting the value Aded Activities in a perfect atmosphere of total quality Domains Focusing on the product according to the choices of the customers Focusing on the processes with profitable purposes tendencies Evaluating product and improving its value Tools of evaluation and improvement Achievement Rate Keeping the functions of the product stable and reducing it's cost Value engineering Target costing and real costing Keeping the cost of the product stable and increasing its functions Value Engineering Real reduction - Target reduction 2. Elements of Target Costing : The implementation of the Target costing approach requires the necessity of the provision of the following elements : A. Designing and planning the product( focus on product design) determine the following variables : Estimated costing of the primary design (x1) Target Profit Margin ( x2) Target selling prices ( x3) COPY RIGHT 2013 Institute of Interdisciplinary Business Research 159

8 Allowed costing x4 and it may measure by the difference between (x2) and (x3) as the following: x4=x3-x2 Target Costing ( x5 ) it must not be exceeded x1 and must not be less than( x4) and it is the target costing may be equal to the allowed costing if the management of the facility adopts incentives systems in the opposite situation the gap must be removed or limited between(x1) and (x4) reaching to the target costing and depending on Value Cost Engineering. The standard costing of the product (x6) in the light of it is possible to determine the target costing as another approach by contrasting( x6) and (x4). If (x6) is less than( x4, x7) is equal to the target costing( x5). and if the opposite thing is, it is necessary to study value cost engineering besides the analysis of the activities as an approach aiming to reduce the standard costing of the product to reach the allowed costing which represents the ideal situation of the target costing of the facility. B. Focusing on the customer. C. The cooperation among the members of the total value chain. D. Analysis of competitors. E. The provision of the other tools assisting the target costing which guarantee increase the efficiency and the competence of it which are the following : Cost Tables / value Engineering Functional Cost Analysis Quality Function Deployment Matrix Concurrent Engineering Value Chain 3. The Method of measuring the target costing ; The methods of measuring the target costing differ according to the philosophy of the facility management and its culture, purposes, strategic plans, the variety of the products, the degree of the complexity of the ingredients of the products and the level of the techniques which is used and the used production systems. the most common ways are : 1. Addition Method : according to this method the target costing is estimated by adding what each ingredient needs from the ingredients of the product according to the analysis of the COPY RIGHT 2013 Institute of Interdisciplinary Business Research 160

9 ingredients and its parts, functions regarding what is accepted by consumers taking into account what is added by the competitive facilities as similar products ingredients. 2. Reduction Method : the target costing is estimated by reducing what is according to conduct the core modifications in designing the product from the current costing. 3. Subtraction Method according to the following equation : The target costing = Target Selling Price Target profit 4. Cost Gap Method To compute the cost gap according to the following equation : Target Costing = Current costing +Cost Gap 5. The method of reconsidering the standardization of costing, the target costing is estimated by modifying the standards of costing to reach to reach the level of the allowed costing according to the following equation : Target costing = standard costs after value engineering 6. The method of maximum and minimum Target costing = the range between estimated costing and the allowed costing. Findings of the research : - The variables of the new manufacturing environment explained the fact of the inability of the standardization system of costing in achieving the purposes of the strategic management represented in improving the quality, reducing costs, maintaining the environment and commitment to the competitive prices of the market. - Target costing and Kaizen Costing represent a subjective alternative completing and developing the system of the costing standardization and seek to activate the role of the accounting information through the whole product life cycle and to explain the relation between the cost of the production and the cost of the competitors and to help in creating a competitive future to the facility. - Target costing contributes in analyzing, evaluating and controlling the costs through the product life cycle and studying the internal and external factors affecting it. - Kaizen Costing contributes in achieving the requirements of the total quality and the elimination of the value Not added Activities and reducing the time of the product life cycle and conducting the additional continuous improvements on both processes planning and COPY RIGHT 2013 Institute of Interdisciplinary Business Research 161

10 designing the product and the Current production processes and achieving the target costing. Recommendations : 1. The necessity to respond to the accounting discipline to the rapid changes in the manufacturing environment and to include the schooling curricula in the departments of accounting the modern approaches of administrative and accounting costs and to hold academic courses and conferences about that in order to guarantee providing the qualified cadres aiming to implement the approaches in the future. 2. The necessity of recognition the importance of the use those techniques by the industrial facilities in cost accounting and administrative accounting which are not contributing in achieving the competitive advantages only but the strategies of perfection and cooperation as well like the technique of comparing( Benchmarking) with the best in order to enable from the successful experiences whether at the level of the facility or at the level of the facilities work in this field aiming to make additional improvements in their activities contributing in supporting their survival and existence in the market. 3. The necessity of combination of the cost with performance as an approach to measure and evaluate by improving the performance in the activities related to create the value and focus on the management of the knowledge. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 162

11 References 1. Prof, Mohammed Ashmawi, cost accounting (modern and traditional perspectives),alyanori, Amman 2011, page Previous Reference page Previous Reference page Previous Reference page Ibasuki, U. and Kaminki,P.C: product development process with focus on value engineering and target costing : A case study in an automotive company., International Journal of Production Economics, Vol.105, Issue 2, 2008,PP Tahani Mahmoud Alnashar : the use of analysis the causes of costing in order to achieve the commutability between the tools of cost that is strategic, Egyptian Commercial Studies Magazine, Faculty of Commerce, Al mansoura University, vol 27,No.4, Gassan Falah Almatarneh : Requirements and obstacles of the implementation of Target costing in the Jordanian Public Contributed Industrial Companies, Damascus University Magazine of Legal and Economic science vol27,no.2, Prof. Mohammad Asmawi, previous reference, page Hilton, R.W. Managerial Accuonting : Creating Value in Dynamic Business Environment, sth ed, New York Mc Graw Hill Companies, Inc, 2002,p Monden, Y., and Lee, j., How A Japanese Quto Maker Reduces Costs. Management Accounting, August Swenson,Dan, Ansari.S Bell J and Kim Woon D, Best Practices in Target Costing Management Accounting Quarterly, vol 4,No.2, Winter,2003. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 163