1. Managing Costs and Revenues--MBA I--Spring 2010 1 Managing Costs & Revenues Professor William F. O’Brien, MBA, CPA Spring 2010

2. Managing Costs and Revenues--MBA I--Spring 2010 2 Session 4 Target Costing Analysis Mid-Term Review

3. Managing Costs and Revenues--MBA I--Spring 2010 3 Target Costing Analysis Customer Orientation Sets costs in the commitment phase-concurrent engineering Supports keiretsu model via the value chain Price led costing Cross functional product teams Focuses on life cycle costing

4. Managing Costs and Revenues--MBA I--Spring 2010 4 Target Costing Process Establishment phase Market research Competitor analysis Niche definition Customer requirement definition Product feature definition Market price determination Profit rate

5. Managing Costs and Revenues--MBA I--Spring 2010 5 Target Costing Process Attainment phase Cost gap computation Design costs out Design release and continuous improvement

6. Managing Costs and Revenues--MBA I--Spring 2010 6 Cost Reduction Cost analysis Components list Functional analysis Customer requirement ranking QFD Matrix Relative functional rankings Value engineering Identify components for cost reduction Generate cost reduction ideas Testing and implementation Cost estimates required at each design iteration

7. Managing Costs and Revenues--MBA I--Spring 2010 7 TC-Strategic Implications Quality is improved through the customer focus of target costing Cost reduction is the heart of target costing Time reduction is a natural by- product due to concurrent engineering

8. Managing Costs and Revenues--MBA I--Spring 2010 8 TC-Attribute Implications Technical Decision relevance improves (quality, cost and time issues are integrated) Process understanding improves Behavioral Early finance involvement and teamwork are mandated Undesirable attributes of longer development, burnout, feature creep & internal conflict can be managed

9. Managing Costs and Revenues--MBA I--Spring 2010 9 TC-Attribute Implications, cont. Cultural Organizational culture must be prepared Commitment to sustaining values must be established Customer focus Cross-functional cooperation Open sharing of information