Cost Accounting Fundamentals by Steven M. Bragg

Author:Steven M. Bragg
Language: eng
Format: epub
Publisher: AccountingTools, Inc.
Published: 2016-02-26T16:00:00+00:00

The Product Life Cycle and Target Costing

Target costing generates a significant and immediate cost reduction at the beginning of a product’s life cycle. Kaizen costing then generates an ongoing series of smaller cost reductions that gradually decline as the number of cost reduction opportunities are eliminated. A company that wants to stay competitive with its product offerings should carefully track the gradual decline in product costs, and replace the original product with a new one when there are minimal cost reductions still to be garnered from the old product. The new product is subjected to the same target costing approach in order to create a new value proposition for the consumer, to be followed by another round of kaizen costing.

In order to remain competitive over the long term, it is clear that a company must be aware of where its products stand within their product cycles, and be willing to replace them when there are minimal costs to be eliminated from the old designs.

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