- Email: [email protected]
Target Costing Calculation and Economic Gain for Companies
Available online at www.sciencedirect.com
ScienceDirect Procedia Economics and Finance 23 (2015) 1195 – 1200
2nd GLOBAL CONFERENCE on BUSINESS, ECONOMICS, MANAGEMENT and TOURISM, 30-31 October 2014, Prague, Czech Republic
Target Costing Calculation and Economic Gain for Companies Jaroslava Kádárová a*, Katarína Teplická b, Michaela Durkáþová a, Marek Vida c a
Technical University of Košice, Faculty of Mechanical Engineering, Department of Industrial Engineering and Management, Letná 9, 042 00 Košice, Slovakia b Technical University of Košice, Faculty of mining, ecology, process control and geotechnologie, Department of Business and Management, Park Komenského 19, 042 00 Košice, Slovakia c Zeocem, a. s., 094 34 Bystré 282, Slovakia
Abstract This paper deals about the problematic of target costing implementation into the managerial decisions. These decisions make value analysis principles for increasing in competitiveness by the setting off limits for maximum allowable costs which should not exceeded by company manufacturing. By this approach is possible to improve product quality, service, shortening the research and development period and continual effort to lower costs. Target costing as a modern method of calculation uses the principles of value analysis, by using instruments of functional cost analysis and quantitative-function deployment can provide a functional differentiation of the product. This approach has a high importance for quality assurance in pre-production phase and it’s increasing. Application of target costing is growing in praxis still. Target costing calculation introduce system approach to quantify costs of product in the phase of constructive and development activities of production. Comparison target costing calculation and traditional calculation show target gap. Target costing calculation is new modern instrument that it facilitates to manage price of product by the customers’ requirements. The price is determined by market and customer’s needs. In this phase is possible to fix costs of product. In praxis we often meet with situation where the price of product is very high and customer is not ready to pay so much. Target costing calculation limits cost of production. © 2015 2014 Published The Authors. Published Elsevier B.V. access article under the CC BY-NC-ND license © by Elsevier B.V.byThis is an open (http://creativecommons.org/licenses/by-nc-nd/4.0/). Selection and/ peer-review under responsibility of Academic World Research and Education Center. Selection and/ peer-review under responsibility of Academic World Research and Education Center Keywords: Cost, target costing, value analysis, price, quality of product.
1. Introduction The calculation of product is today very important and the calculation is necessary in term of customer requests and customer needs. By the creation of calculation is important to accept quality of product and to value price of
* Jaroslava Kádárová. Tel.: +421-55-602-3242 E-mail address: [email protected]
2212-5671 © 2015 Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Selection and/ peer-review under responsibility of Academic World Research and Education Center doi:10.1016/S2212-5671(15)00331-7
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product following the quality. Today customers influence price of product by specifications of product and producers, businessmen must to adapt price of product to customer requirements. This reason is stimulus to change creation of calculation and to use new modern methods of calculation for example activity based costing, target costing, kaizen costing, job costing, and inventory costing and other. Utilization of these methods in companies in manufacturing company brings some specifics. These methods produce better evidence of costs and price of product but they are very difficult to introduce in praxis (Popesko, 2010). Integral part of calculation creation is knowledge management that will be orientated to know everything about customer and needs of customers, market specifications and possibilities how to be competitive, something about competition and her strategy in area of calculation. Target costing method demands to monitor market price and price of competitive. The price of product consists of cost items that we must reduce. Direct and indirect costs will be reduced by using of new methods. Very important part of price is profit. We must accept profit charge by the creation of calculation. Target costing calculation is a part of value analysis that is a very important tool that can increase the competitiveness of outputs in each branch of industry. Value analysis represents a systematic approach to evaluation of product characteristics that enables to fix alternatives that can improve the product quality, defined as the proportion of its commercial characteristics and costs. Project aim: The main goal of this project is to present target costing calculation and its using in wood processing industry by the creation of price calculation. We would like present advantages and disadvantages of this calculation method in company and to compare this progressive method with classical method of cost calculation. 2. Research methodology Target costing calculation also referred to as target oriented method of costing calculation has its origins in Japan. In 1980’s it spread to our continent through American daughter companies in Western European countries. In 1990’s more than 80 % of engineering and electro technical industry companies in Japan used this method of calculation (Tumpach, 2008). Target costing is not just a cost reduction technique or control framework but part of the comprehensive strategic profit management system including value analysis and value engineering (Helms, Ettkin, Baxter & Gordon, 2005). The primary task is not to find out how much a product costs, but how much a product can cost so that it is possible to be sold for a particular market price. Calculation as a pricing tool is in the areas of strong competition therefore slowly losing its significance. Price is determined by the market and it is not possible to offer the product at the market for a higher price. Thus companies have to manufacture products with such costs which can be covered by the final price. Therefore it is important to plan costs not only in the manufacturing stage but at the initial stages of the production performance. Production costs are influenced especially by its characteristics and manufacturing methods. The difference between the traditional approach of the calculation and the target costing is present on the figure 1. Majority of performance costs are decided already in pre-manufacturing stages since there are already determined such factors as technological progress and performance characteristics. It is proved that 85 to 90% of costs relating to performance are the result of decision made in pre-manufacturing stages (Foltínová, et al., 2007). The basic idea of target costing calculation is in setting the limits for maximum allowable costs which should not exceeded by company manufacturing. This limit is untraditionally set on the basis of technical and economic standards of tangible consumption but as the rest which remains from the product price minus the target required profit (Foltínová, et al. (2007). Allowable costs are set by subtracting the target profit from the target price (Kádárová, 2011; Macík, 1999). Allowable costs are compared with standard drifting costs and the final difference shows the necessary cut of costs already at the product development stage. Allowable costs = target price – target profit
(1)
The base for using this method is the existence of relatively stable or beforehand expected market price (target price). This price must reflect especially the value perceived by customers, characteristics, quality and competitive
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or substitute performance price (Vetráková, et al., 2007). The price should be verified by marketing research which should focus on target group of customers’ preferences (Kádárová, 2011). COST CALCULATION
TARGET COSTING
Market analysis + basic parameters of the product
Market analysis on the base of customer preferences
Technical documentation (constructional documentation) Technological preparation (consumption standards of work, materials, normative, limits ...) Organisational provision (production, storage, distribution, sales
Target price (with Target profit)
TARGET COSTING
PRICE = Direct and overhead cost + profit
Technical, technological and organisational preparation - optimalization of production
MANUFACTURING PROCESS
Fig. 1. Difference between the traditional approach of the calculation and the target costing
In real life it often happens that high production costs are not the result of the fact what the real customers’ needs are but more what is supposed their needs will be. At target costing calculation it is therefore by means of marketing research necessary to find out the customers’ requirements on performance and put them into balance with performance parameters. Quantitative-function deployment (QFD) deals primarily with this analysis (Marešová, 2001). On the other hand the functional cost analysis focuses on finding out any inconsistency between customers’ preferences and real costs. There is though a problem with stating customers’ qualified point of view on some of the performance parameters since customers can express their requirements regarding the performance look and its basic functions but not its individual parts. 3. Results of project - target costing calculation In order to develop new PC desk Classic we provided the marketing analysis, which revealed that from the point of view of potential customers the most important are the following functions listed also with the percentage: enough storage space 35 %, spacious working space 30 %, modular principle 22 %, sliding bar keyboard 8 %, and possibility of ergonomic adjustment 5 %. The price survey pointed out that an ideal initial market price would be 120 €. For the company is adequate return of cost on the level 10 %. After quantitative functional analysis of customers’ requirements on function and its individual components were found the following facts (table 1). Table 1. Qualitative-functional analysis of PC desk Classic Functions
Storage space (35%)
Components Corpus 12,25 %
Work tops
Doors and drawer
3,50 %
15,75 %
Connecting materials and forging 3,50 %
Mounts and legs -
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Jaroslava Kádárová et al. / Procedia Economics and Finance 23 (2015) 1195 – 1200 Working Space (30%) Modular principle (22%) Sliding bar keyboard (8%) Ergonomic adjustment (5%) Total
3,00 % 6,60 % 1,60 % 0,25 % 23,70%
27,0 % 30,50 %
5,50 % 2,40 % 23,65 %
8,80 % 4,00 % 16,30 %
1,10 % 4,75 % 5,85 %
Project task: It is necessary to set the level of target profit and overall allowable cost, allowable costs of individual components and by the functional costs analysis determine the inconsistency between customers’ preferences and planned costs necessary for this furniture production. Since we have no data concerning the level costs on individual PC desk furniture components we will set its level according to customers’ preferences. Results: At first it is necessary to set importance of individual components as the collation of importance scale of individual customers’ preferences and percentage of assurance level of a particular preference by individual components (Table 2). Table 2. Setting the level of individual components importance Functions Storage space (35%) Working Space (30%) Modular principle (22%) Sliding bar keyboard (8%) Ergonomic adjustment (5%)
Corpus
Work tops
35 % 10 % 30 % 20 % 5%
10 % 90 % -
Target price 120 €
Components Doors and Connecting materials drawer and forging 45 % 10 % 25 % 40 % 30 % 50 % -
Target profit 10,9 €
Corpus
Work tops
Doors and drawer
Target cost 25,86 €
Target cost 33,28 €
Target cost 25,81 €
Mounts and legs 5% 95 %
Target costs 109,1 €
Connecting materials and forging Mounts and legs Target cost 17,79 € 6,36 €
Target costs = 109,1 € Fig. 2. Target costing calculation for selected product
According to figure 2, the firm must produce the PC desk Classik in 109,10 € of production cost. Price of customer is 120 € and the profit is 10,90 €. The firm needs to produce this product in 109,10 € because by the higher cost the firm doesn’t obtain profit 10 %. Figure 3 presents price of product, profit, costs and costs for individual components of product. On the basis of functional costs analysis it is possible to state that when buying PC desks 35 % of customers are interested in function of storage space and approximately another 52 % of customers consider as the most important spacious of working space and modular principle of construction this product. We can also state, that in this case this reflects the basic PC desk furniture functions and they count for 73,3 % of total level of the costs. Without this function is basically non-functional product for customers.
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4. Results of analysis and discussion The result from the target costing should therefore reflect the improvement of those functions which are preferred by 87 % of customers and at the same time it allows to lower the price about 30 €. Of course we have to bear in mind a condition that expected positive effects will outnumber the drop-out of sales of 13 % of customers who prefer the function which should be eliminated. The second result from the target costing approach is that at the stage of research and product is possible to establish criteria levels of the cost of individual components needed for production of PC desk that respect of market price and the acceptable level of target profit. This is very important information for decision-making task of the type Make or Buy. This is one from the trends of Contemporary Developmental Orientations in the Production on Furniture Branch. About this problematic describe (Stasiak – Betlejewska Borkowski, 2007). Reduction of costs by the managerial instruments QFD, VE, DFMA...
Corpus Traditional cost 29,68 €
Work tops Traditional cost 38,16 €
Doors and drawer Traditional cost 29,59 €
Connecting materials and forging 20,39 € Mounts and legs 7,28 € Traditional cost
Traditional price of product without profit was 125,1 €
Fig. 3. Comparing analysis of traditional cost calculation and target costing
The third result of this analysis is that the traditional calculation projects costs of product before production process and this method do not accept customer's requests but this method calculate costs on selected product and to accept standards of production process. We can see that the production costs are 125,10 € and by target costing calculation we can obtain costs for 109,10 € by the same planning profit charge 10 %. The fourth result is that we can reduce costs of production for all components of selected product. For example the costs of Corpus are 29,68 € and by the target costing method we can achieve 25,86 € - in summary it is 3,82 € savings for one component. For one product we can save 16 € in costs. The fifth result – target costing method shows assortment of production that customer wants and its characteristics and this is advantages of this method. 5. Conclusion Target costing as a modern method of calculation uses the principles of value analysis, by using instruments of functional cost analysis and quantitative-function deployment can provide a functional differentiation of the product. This approach can find limitations in the initial stage of research and product development, while 85 to 90 % of the costs related to performance is the result of decisions made in the pre-production stages. The risk of this approach is mainly at application of precision marketing research and determining the level of allowable costs for each component of the products. By this means is possible to increase of competitiveness in manufacturing. This approach has a high importance for quality assurance in pre-production phase and it’s increasing. Acknowledgements This contribution is the result of the projects implementation: Project VEGA 1/0669/13 Proactive crisis management of industrial enterprises based on the concept of controlling.
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References Antošová, M., Csikósová, A., Mihalþová, B. (2013). Application Knowledge Management in the Practice of Business Subjects in Slovakia. In. Procedia - Social and Behavioral Sciences, Volume 83, 4 July 2013, Pages 975-979. ISSN 1877-0428. Drábek, J., Merková, M. (2008). Finanþná a ekonomická kríza a jej vplyv na rozvoj DSP SR. Zvolen: Controlling a manažérstvo kvality v podnikoch. ISBN 978-80-228-1931-2. Foltínová, A., et al. (2007). Nákladový controlling. Bratislava: Sprint, 450 p. ISBN 978-80-89085-70-5. Gejdoš, P. (2005). Možnosti zabezpeþovania kvality v predvýrobnej etape. In: Kvalita. þ. 4/2005. P. 24-27, MASM Žilina. ISSN 1335-9231. Helms, M., Ettkin, L., Baxter, J., Gordon, M. (2005). Managerial implications of target costing. Competitiveness Review an international journal of incorporating Journal of Global Competitiveness, vol. 15, issu 1, p. 49-56. ISSN 1059-5422. Kádárová, J. (2011). Základy nákladov a tvorby cien. Košice, SjF TU, p.205. ISBN 978-80-553-0812-8. Král, B., et al. (2001). Manažérske úþtovníctvo. Bratislava: Súvaha s.r.o., 344 p. ISBN 80-88727-45-6. Kupkoviþ, M., et al. (2002). Kalkulácie a rozpoþty. Bratislava: Sprint Bratislava, 251 p. ISBN 80-88848-95-4. Macík, K. (1999). Kalkulace nákladĤ – základ podnikového controllingu. Ostrava: Montanex a.s., 241p. ISBN 80-7225-002-7. Marešová, P. (2001). Výzkum uplatnČní znalostního managementu v þeských podnicích. Ekonomie a management. roþ.13, þ. 1/2001, s. 131-143, TU Liberec. ISSN 1212-3609. Paluš, H., Kaputa, V. (2007). Attitudes towards forest and chain of custody certification in Slovakia. In International symposium Perspectives and challenges in wood technology: Proceedings. Skopje: Akademski peþat, Macedonia, p. 476 - 478. ISSN 9989-132-10-0. Parobek, J. (2006). Changes in European Wood Industry. In INTERCATHEDRA No 21 : PoznaĖ, Poland, Vol. 21, p. 87-91. ISSN 1640-3622. Popesko, B. (2010). Activity Based Costing application methodology for manufacturing industries. Ekonomie a management . roþ.13, þ. 1/2010, str. 103-113, TU Liberec. ISSN 1212-3609. Šatanová, A. (2004). Controlling v podnikoch drevárskeho priemyslu. Vedecké štúdie, Zvolen: VydavateĐstvo TU Zvolen, 2/2004/B. 81 s. ISBN 80-228-1310-9. Škoda, M. (2004). Kalkulácie a rozpoþty. Bratislava, Verlag Dashöfer, 112 p. ISBN 80-89010-14-8. Stasiak – Betlejewska R., Borkowski S. (2007). Contemporary Developmental Orientations in the Production on the Example of the Furniture Branch. In: New Trends in Quality Management“ 3rd International Scientific Seminar of the Quality Production Teachers, edit. MtF STU Trnava, Slovakia, ISBN 978-80-8096-027-8. Teplická, K. (2012). Nový prístup k tvorbe ceny výrobku. In: Zisk : riadenie - marketing- podnikanie. Roþ. 4, þ. 2, s. 42-43. - ISSN 1337-9151. Tumpach, M. (2008). Manažérske a nákladové úþtovníctvo. Iura edition, 253 p. ISBN 978-80-8078-168-2. Vetráková M., et al. (2007). Hodnotenie prínosu zamestnancov. EF UMB Banská Bystrica. Tlaþ: Bratia Sabovci Zvolen, 192 p. ISBN 978–80– 8083–5378.
ScienceDirect Procedia Economics and Finance 23 (2015) 1195 – 1200
2nd GLOBAL CONFERENCE on BUSINESS, ECONOMICS, MANAGEMENT and TOURISM, 30-31 October 2014, Prague, Czech Republic
Target Costing Calculation and Economic Gain for Companies Jaroslava Kádárová a*, Katarína Teplická b, Michaela Durkáþová a, Marek Vida c a
Technical University of Košice, Faculty of Mechanical Engineering, Department of Industrial Engineering and Management, Letná 9, 042 00 Košice, Slovakia b Technical University of Košice, Faculty of mining, ecology, process control and geotechnologie, Department of Business and Management, Park Komenského 19, 042 00 Košice, Slovakia c Zeocem, a. s., 094 34 Bystré 282, Slovakia
Abstract This paper deals about the problematic of target costing implementation into the managerial decisions. These decisions make value analysis principles for increasing in competitiveness by the setting off limits for maximum allowable costs which should not exceeded by company manufacturing. By this approach is possible to improve product quality, service, shortening the research and development period and continual effort to lower costs. Target costing as a modern method of calculation uses the principles of value analysis, by using instruments of functional cost analysis and quantitative-function deployment can provide a functional differentiation of the product. This approach has a high importance for quality assurance in pre-production phase and it’s increasing. Application of target costing is growing in praxis still. Target costing calculation introduce system approach to quantify costs of product in the phase of constructive and development activities of production. Comparison target costing calculation and traditional calculation show target gap. Target costing calculation is new modern instrument that it facilitates to manage price of product by the customers’ requirements. The price is determined by market and customer’s needs. In this phase is possible to fix costs of product. In praxis we often meet with situation where the price of product is very high and customer is not ready to pay so much. Target costing calculation limits cost of production. © 2015 2014 Published The Authors. Published Elsevier B.V. access article under the CC BY-NC-ND license © by Elsevier B.V.byThis is an open (http://creativecommons.org/licenses/by-nc-nd/4.0/). Selection and/ peer-review under responsibility of Academic World Research and Education Center. Selection and/ peer-review under responsibility of Academic World Research and Education Center Keywords: Cost, target costing, value analysis, price, quality of product.
1. Introduction The calculation of product is today very important and the calculation is necessary in term of customer requests and customer needs. By the creation of calculation is important to accept quality of product and to value price of
* Jaroslava Kádárová. Tel.: +421-55-602-3242 E-mail address: [email protected]
2212-5671 © 2015 Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Selection and/ peer-review under responsibility of Academic World Research and Education Center doi:10.1016/S2212-5671(15)00331-7
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product following the quality. Today customers influence price of product by specifications of product and producers, businessmen must to adapt price of product to customer requirements. This reason is stimulus to change creation of calculation and to use new modern methods of calculation for example activity based costing, target costing, kaizen costing, job costing, and inventory costing and other. Utilization of these methods in companies in manufacturing company brings some specifics. These methods produce better evidence of costs and price of product but they are very difficult to introduce in praxis (Popesko, 2010). Integral part of calculation creation is knowledge management that will be orientated to know everything about customer and needs of customers, market specifications and possibilities how to be competitive, something about competition and her strategy in area of calculation. Target costing method demands to monitor market price and price of competitive. The price of product consists of cost items that we must reduce. Direct and indirect costs will be reduced by using of new methods. Very important part of price is profit. We must accept profit charge by the creation of calculation. Target costing calculation is a part of value analysis that is a very important tool that can increase the competitiveness of outputs in each branch of industry. Value analysis represents a systematic approach to evaluation of product characteristics that enables to fix alternatives that can improve the product quality, defined as the proportion of its commercial characteristics and costs. Project aim: The main goal of this project is to present target costing calculation and its using in wood processing industry by the creation of price calculation. We would like present advantages and disadvantages of this calculation method in company and to compare this progressive method with classical method of cost calculation. 2. Research methodology Target costing calculation also referred to as target oriented method of costing calculation has its origins in Japan. In 1980’s it spread to our continent through American daughter companies in Western European countries. In 1990’s more than 80 % of engineering and electro technical industry companies in Japan used this method of calculation (Tumpach, 2008). Target costing is not just a cost reduction technique or control framework but part of the comprehensive strategic profit management system including value analysis and value engineering (Helms, Ettkin, Baxter & Gordon, 2005). The primary task is not to find out how much a product costs, but how much a product can cost so that it is possible to be sold for a particular market price. Calculation as a pricing tool is in the areas of strong competition therefore slowly losing its significance. Price is determined by the market and it is not possible to offer the product at the market for a higher price. Thus companies have to manufacture products with such costs which can be covered by the final price. Therefore it is important to plan costs not only in the manufacturing stage but at the initial stages of the production performance. Production costs are influenced especially by its characteristics and manufacturing methods. The difference between the traditional approach of the calculation and the target costing is present on the figure 1. Majority of performance costs are decided already in pre-manufacturing stages since there are already determined such factors as technological progress and performance characteristics. It is proved that 85 to 90% of costs relating to performance are the result of decision made in pre-manufacturing stages (Foltínová, et al., 2007). The basic idea of target costing calculation is in setting the limits for maximum allowable costs which should not exceeded by company manufacturing. This limit is untraditionally set on the basis of technical and economic standards of tangible consumption but as the rest which remains from the product price minus the target required profit (Foltínová, et al. (2007). Allowable costs are set by subtracting the target profit from the target price (Kádárová, 2011; Macík, 1999). Allowable costs are compared with standard drifting costs and the final difference shows the necessary cut of costs already at the product development stage. Allowable costs = target price – target profit
(1)
The base for using this method is the existence of relatively stable or beforehand expected market price (target price). This price must reflect especially the value perceived by customers, characteristics, quality and competitive
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or substitute performance price (Vetráková, et al., 2007). The price should be verified by marketing research which should focus on target group of customers’ preferences (Kádárová, 2011). COST CALCULATION
TARGET COSTING
Market analysis + basic parameters of the product
Market analysis on the base of customer preferences
Technical documentation (constructional documentation) Technological preparation (consumption standards of work, materials, normative, limits ...) Organisational provision (production, storage, distribution, sales
Target price (with Target profit)
TARGET COSTING
PRICE = Direct and overhead cost + profit
Technical, technological and organisational preparation - optimalization of production
MANUFACTURING PROCESS
Fig. 1. Difference between the traditional approach of the calculation and the target costing
In real life it often happens that high production costs are not the result of the fact what the real customers’ needs are but more what is supposed their needs will be. At target costing calculation it is therefore by means of marketing research necessary to find out the customers’ requirements on performance and put them into balance with performance parameters. Quantitative-function deployment (QFD) deals primarily with this analysis (Marešová, 2001). On the other hand the functional cost analysis focuses on finding out any inconsistency between customers’ preferences and real costs. There is though a problem with stating customers’ qualified point of view on some of the performance parameters since customers can express their requirements regarding the performance look and its basic functions but not its individual parts. 3. Results of project - target costing calculation In order to develop new PC desk Classic we provided the marketing analysis, which revealed that from the point of view of potential customers the most important are the following functions listed also with the percentage: enough storage space 35 %, spacious working space 30 %, modular principle 22 %, sliding bar keyboard 8 %, and possibility of ergonomic adjustment 5 %. The price survey pointed out that an ideal initial market price would be 120 €. For the company is adequate return of cost on the level 10 %. After quantitative functional analysis of customers’ requirements on function and its individual components were found the following facts (table 1). Table 1. Qualitative-functional analysis of PC desk Classic Functions
Storage space (35%)
Components Corpus 12,25 %
Work tops
Doors and drawer
3,50 %
15,75 %
Connecting materials and forging 3,50 %
Mounts and legs -
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Jaroslava Kádárová et al. / Procedia Economics and Finance 23 (2015) 1195 – 1200 Working Space (30%) Modular principle (22%) Sliding bar keyboard (8%) Ergonomic adjustment (5%) Total
3,00 % 6,60 % 1,60 % 0,25 % 23,70%
27,0 % 30,50 %
5,50 % 2,40 % 23,65 %
8,80 % 4,00 % 16,30 %
1,10 % 4,75 % 5,85 %
Project task: It is necessary to set the level of target profit and overall allowable cost, allowable costs of individual components and by the functional costs analysis determine the inconsistency between customers’ preferences and planned costs necessary for this furniture production. Since we have no data concerning the level costs on individual PC desk furniture components we will set its level according to customers’ preferences. Results: At first it is necessary to set importance of individual components as the collation of importance scale of individual customers’ preferences and percentage of assurance level of a particular preference by individual components (Table 2). Table 2. Setting the level of individual components importance Functions Storage space (35%) Working Space (30%) Modular principle (22%) Sliding bar keyboard (8%) Ergonomic adjustment (5%)
Corpus
Work tops
35 % 10 % 30 % 20 % 5%
10 % 90 % -
Target price 120 €
Components Doors and Connecting materials drawer and forging 45 % 10 % 25 % 40 % 30 % 50 % -
Target profit 10,9 €
Corpus
Work tops
Doors and drawer
Target cost 25,86 €
Target cost 33,28 €
Target cost 25,81 €
Mounts and legs 5% 95 %
Target costs 109,1 €
Connecting materials and forging Mounts and legs Target cost 17,79 € 6,36 €
Target costs = 109,1 € Fig. 2. Target costing calculation for selected product
According to figure 2, the firm must produce the PC desk Classik in 109,10 € of production cost. Price of customer is 120 € and the profit is 10,90 €. The firm needs to produce this product in 109,10 € because by the higher cost the firm doesn’t obtain profit 10 %. Figure 3 presents price of product, profit, costs and costs for individual components of product. On the basis of functional costs analysis it is possible to state that when buying PC desks 35 % of customers are interested in function of storage space and approximately another 52 % of customers consider as the most important spacious of working space and modular principle of construction this product. We can also state, that in this case this reflects the basic PC desk furniture functions and they count for 73,3 % of total level of the costs. Without this function is basically non-functional product for customers.
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4. Results of analysis and discussion The result from the target costing should therefore reflect the improvement of those functions which are preferred by 87 % of customers and at the same time it allows to lower the price about 30 €. Of course we have to bear in mind a condition that expected positive effects will outnumber the drop-out of sales of 13 % of customers who prefer the function which should be eliminated. The second result from the target costing approach is that at the stage of research and product is possible to establish criteria levels of the cost of individual components needed for production of PC desk that respect of market price and the acceptable level of target profit. This is very important information for decision-making task of the type Make or Buy. This is one from the trends of Contemporary Developmental Orientations in the Production on Furniture Branch. About this problematic describe (Stasiak – Betlejewska Borkowski, 2007). Reduction of costs by the managerial instruments QFD, VE, DFMA...
Corpus Traditional cost 29,68 €
Work tops Traditional cost 38,16 €
Doors and drawer Traditional cost 29,59 €
Connecting materials and forging 20,39 € Mounts and legs 7,28 € Traditional cost
Traditional price of product without profit was 125,1 €
Fig. 3. Comparing analysis of traditional cost calculation and target costing
The third result of this analysis is that the traditional calculation projects costs of product before production process and this method do not accept customer's requests but this method calculate costs on selected product and to accept standards of production process. We can see that the production costs are 125,10 € and by target costing calculation we can obtain costs for 109,10 € by the same planning profit charge 10 %. The fourth result is that we can reduce costs of production for all components of selected product. For example the costs of Corpus are 29,68 € and by the target costing method we can achieve 25,86 € - in summary it is 3,82 € savings for one component. For one product we can save 16 € in costs. The fifth result – target costing method shows assortment of production that customer wants and its characteristics and this is advantages of this method. 5. Conclusion Target costing as a modern method of calculation uses the principles of value analysis, by using instruments of functional cost analysis and quantitative-function deployment can provide a functional differentiation of the product. This approach can find limitations in the initial stage of research and product development, while 85 to 90 % of the costs related to performance is the result of decisions made in the pre-production stages. The risk of this approach is mainly at application of precision marketing research and determining the level of allowable costs for each component of the products. By this means is possible to increase of competitiveness in manufacturing. This approach has a high importance for quality assurance in pre-production phase and it’s increasing. Acknowledgements This contribution is the result of the projects implementation: Project VEGA 1/0669/13 Proactive crisis management of industrial enterprises based on the concept of controlling.
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