I. Introduction
Target cost direction ( TCM ) is an invention of Nipponese direction accounting system and by common sense has been considered with great involvement by practicians. Nowadays. TCM related thesiss. documents. articles are widely being published in particular diaries both in North America and Europe ; this may explicate why seminars and workshops about TCM are so frequent1. Even in the academicians’ seminars and other meetings of research organisations. TCM related articles have a high chance to be accepted and reported. Last twelvemonth for illustration. the American Accounting Association’s seminar held in Boston about “Japanese cost management”2 was focused on the preparation of TCM ( Okano-Shimizu. 1994 ; Kato. 1995 ) . The above state of affairs shows that the attending put on TCM is really different from that one put on JIT- “Japanese production system”- in the 1980s.
So far. there were arguments refering the a priori that “The fight of Nipponese industries” is the result of the direction system excellence. With many jobs confronting Nipponese industries late. the originality in the research and development system prior to the debut of a new merchandise becomes a point of great importance. Nowadays’ ardent competition is likely to rush up the TCM system. Nevertheless. many of the published instances about TCM system have been made in particular diaries. Academic journal publications are few in comparing. Academic researches about TCM are now in the embryologic stage3. In the visible radiation of that state of affairs. this paper seeks to analyze the importance of the relationship between scheme. organisation. and TCM. Three waies of TCM are besides presented. every bit good as the intertwines between Product Manager Allowance. ABC/ABM. Then future TCM research orientation is made.
II. TARGET COST MANAGEMENT EXTENSIONS
1. Multiple Target Cost Management Until now. the focal point on TCM was merely made for a individual merchandise. This is chiefly because attending was put on merchandise director for the development of a individual theoretical account in the car industry. In Toyota. there was a large restructure in merchandise development centre in 1992. There are now four development centres: Rear Wheel Driver Center. Front Wheel Driver Center ( FWD ) . Commercial and Recreational Vehicle Center. and Advanced Technology Center. This transmutation has changed the duty of merchandise director. Clark and Fujimoto ( 1991 ) described the Nipponese merchandise director as a “heavyweight” merchandise director. However. anterior to Toyota’s merchandise development organisational alteration. merchandise manager’ undertaking was “less heavier” . due to the multiplicity of theoretical accounts. With the alteration. they have truly regained their duty ( Okano. 1995 ; Nobeoka. 1995 ) . Under the new organisational design. while the merchandise director is independent for the development invention and specificity of a theoretical account. cooperation and coaction with others in the centre become strong since the system enforces the commonalty of parts and multi-project orientation ( Nobeoka. 1993 ) .
This is the other chief ground for the restructuring of Toyota’s merchandise development centre. The result is that now. TCM activities are performed for each development centre. In each centre. information sharing between merchandise directors. cost estimators5. and other design squad members is now really smooth6. This shows that the old construct of TCM is no more relevant. TCM activities have to be performed for multiple undertakings. TCM invention that fits with multi-projects merchandise development has to be made. 2. Technology Focused Target Cost Management Innovation on nucleus engineering is going really of import in many industries.
Logistic scheme including providers procurement scheme. and location scheme as good are going of import in today’s competitory environment. Within this model. TCM has to be extended to include the whole concern scheme. It can no longer be limited merely to merchandise schemes. In Toyota for illustration. direction has to believe about how to cover with TCM in the 4th engineering centre. This is what we mean by TCM for strategic engineering direction. While make up one’s minding about the usage of nucleus engineering for a peculiar merchandise. the deduction on profitableness of the merchandise. and other merchandises which can profit from the same engineering must besides be estimated. In the instance of investing determination for a peculiar merchandise. the rating should
non be limited to that merchandise. but has to take into history other merchandises that can profit the investing. This shows the importance to believe about R & A ; D TCM and engineering focused TCM7. 3. Manufacturing Focused Target Cost Management: Linkage Between Cost Maintenance and Kaizen Cost Management It is believed that mark costing activities are chiefly carried out at the construct and development phase of a merchandise. This belief is based on the premise that about 80 per centum of costs for a peculiar merchandise is locked before the beginning of production phase. Even after all TCM related activities are efficaciously done during the construct and development phase. this does non guarantee that one time the production begins. costs will stay as predicted. Therefore. the effectivity of TCM depends on the effectual linkage between cost care and kaizen costing.
For illustration. when a mark cost can non be met after production begins. a “special commission of kaizen cost management” made of fabrication divisions and R & A ; D members is set to cover with the instance 8. Cost care and kaizen costing direction are activities by section within a peculiar period of clip. Calculation related to public presentation rating are besides done by section within a peculiar period of clip. However. in order to be effectual. TCM has to affect non merely production applied scientist or procedure applied scientist. but besides the chief. The latter will roll up fabrication information and make feedback to plan squad members. To make this aim. cost care and kaizen bing activities will concern a peculiar merchandise. Therefore the TCM for a mill is of import. Until now the focal point was made merely on production technology section ; TCM should besides affect fabrication section members though it is non easy. Making so. the cost drivers that are “invisible” from the design applied scientist will go seeable. This raises the importance of fabrication focused TCM. ( Figure 1: Target Cost Management Extensions )
III. CALCULATION SYSTEM AND TCM
1. Setting of Target Cost ( 1 ) Merchandise Manager Allowance ( PM Allowance ) Okano ( 1995b. degree Celsius ) divides mark cost direction into two procedures. “calculation system” and “management system” . and describes that PM allowance. which is a formal slack PM has. and informal slacks which each section has for the analysis of the former.
”PM allowance” is a slack which is designated to be used by a PM in the instance that factors like design alteration. market alteration. every bit good as cost appraisal miss occur and connote supplement activities in order to make the mark cost. So far. the concrete apprehension of PM allowance is non yet clarified. PM allowance is said to be about one per centum of a mark cost. However. harmonizing to Nishida ( 1995 ) the allowance of the first “Daihatsu Charade” represented 10 per centum. And Kajita stated that Nissan in its plan to reassign TCM outside Japan. put an allowance system for PM. Other members of the development squad of class are besides concerned by that allowance. However a PM coordinates all activities to make full the spread between the construct and the cost happening. For one duplicator shaper. this allowance is the slack to be used in each measure of development phase -design alteration hazard. composing alteration hazard. cost appraisal alteration hazard. and procurement alteration risk- under the alleged “cost discrepancy hazard management” .
2. ABC/ABM and Target Cost Management As described earlier. it is of import to associate TCM with other direction systems like Kaizen cost direction. One illustration of linkage in footings of computation system can be showed in the undermentioned two ways. The first one concerns the allotment of operating expense costs merely to parts specifically related to the merchandise. In this manner. the focal point can be made on design costs. In the instance of Toyota. while the design costs of outsourcing parts include supplier’s natural stuff costs. direct rewards. indirect labour cost. fabrication disbursals. support division disbursals. general administrative and gross revenues division disbursals. net income. packaging cost for transit. and decease farm outing cost. the design cost of in-house parts includes merely the direct stuff cost and non including procedure costs such as direct labour cost and operating expense which have no direct linkage with the merchandise. The 2nd manner concerns the best possible allotment of operating expense to merchandises at the design phase. In this state of affairs. the activity-based attack could be used within the TCM procedure ( See figure 2 ) . ( Figure 2: Relation Between TCM. Cost Maintenance and Kaizen Cost Management )
In instance of implementing an activity-based attack. a careful analysis of cost drivers is a must. The statements expressed refering the analysis of cost drivers of merely the costs occurred before and after the production procedure is non sufficient. In order to associate ABC/ABM to TCM procedure. an extra analysis of cost drivers related to pre-determined costs at the design and pre-production phases is necessary. ( Figure 3: Determined Cost Curve and Occurred Cost curve ( Kato. 1993. p. 25 ) ) Figure 3 shows the difference between the occurred costs and the determined costs. which are of import. before and after the production procedure and that explains the importance of TCM as an upstream direction. But. until now. within the activity-based attack. the focal point was made merely on the determined costs. The ground is that the construct of cost driver itself concerns occurred costs merely.
Of class the activity-based attack is after all based on the conventional accounting rules refering the construct of bing. In many companies that implemented TCM. this latter is based on conventional accounting rules refering the construct of cost. However. the computation of determined costs does non necessitate the usage of conventional cost accounting system inside the company but many sort of cost information which can be generated from outside the company ( e. g. . cost information from providers. rival analysis. benchmarking tools. and so on ) . Therefore. in order to make a linkage between TCM and the activity-based attack. a new manner of believing on the cost driver construct is necessary.
Shank and Gojindarajan ( 1993 ) focused on the construct of cost driver following Riley ( 1987 ) . They broke up a list of cost drivers into two classs ; the first class called “structural” cost drivers trades with the following strategic picks: graduated table. range. experience. engineering. and complexness. These picks constitute the primary factors of cost alteration at the calculus degree. The 2nd class of cost drivers is called “executional” cost drivers which constitute determiners of a successful cost place. The most of import executional cost drivers include: work force engagement. Entire Quality Management ( TQM ) . capacity use. works layout efficiency. merchandise constellation. good relation with providers. and so on. The structural cost drivers have no direct linkage with efficiency and the figure of cost drivers identified does non convey necessary any satisfaction. However. the executional cost drivers are linked to efficiency and the more cost drivers are identified the more it brings better satisfaction.
Furthermore. the penetrations from analysis based on structural drivers are excessively frequently old fashioned and while the adviser who performs a strategic cost analysis is bit by bit directing his attending on the executional cost drivers. the comptroller from his side is still hold oning the structural cost drivers10 ( Shank and Govindarajan. 1993. p. 22 ) . Although many surveies have been accumulated. Shank and Gojindarajan’s original averment is that costs are non assigned to merely merchandises that consume activities. great importance is given to “which activities truly add value to the customer” and “those activities are performed expeditiously or not” ( See Figure 4 ) . That is to state. harmonizing to Shank and Govindarajan. merely activities in box A should be assigned to merchandises and activities in box D demand to be examined in order to better their efficiency so that they can be assigned to merchandises. However. analyzing whether the resources devoted to activities in box B can or can non be re-deployed in value-adding activities is necessary.
Finally. activities in box C should be eliminated. ( Figure 4: Activity Cost Structure ( Shank and Govindarajan. 1993 ) ) On the other manus. Shank and Govindarajan see the activity-based attack a utile tool for strategic analysis but non an accounting system. This point of position is explained in the undermentioned averment: “ABC is seen as a really utile fiscal tool of strategic direction. But ABC is non needfully the primary fiscal tool. or even one of the most of import. It is surely non a direction accounting Panacea. Furthermore. our experience indicates that the benefits of ABC in merchandise line appraisal and activity direction can outdo be achieved by avoiding its formalisation as portion of a general leger bookkeeping system” . ( p. 180-181 ) Finally. “We see ABC as a utile strategic analysis tool. but non as the primary tool” ( p. 21 ) . “ABC: strategic tool. non an accounting system” ( p. 180 ) . Shank and Govindarajan used a constructive and detailed analysis on cost drivers in order to knock the ABC attack.
IV. Decision
The conventional direction accounting was concentrating merely on production procedure phase. while with TCM a nexus must be between merchandise development and accounting. However. as described in the debut. the research every bit good as the instruction field still have some jobs to work out. As an illustration. it is recognized that TCM without a concurrent applied scientist and an upstream direction can non be effectual. But this relation between concurrent applied scientist and an upstream direction has to be clarified in order to turn up where can both of them be effectual. In other words. if the duty and the authorization of each of them within the R & A ; D squad does non alter. many jobs will take topographic point. For this. the Management By Objective attack. which is being used non merely by the European companies but besides by Nipponese companies. and TCM have to be efficaciously linked.
The ways of nexus must be clearly identified and this can be made by the behavioral or the organisational facet of TCM. Besides. before implementing a TCM undertaking. the possible functionality of the system every bit good as its dysfunctionality must be clearly and carefully defined ( Kato. 1993 ) . Concentrating on the dysfunctionality. a questionnairesurvey was made by Shields. Chow. Deng and Kato ( 1995 ) covering with the dysfunctionality inside and outside the TCM itself. Okano ( 1995 ) defined this non-functionality as basically the spread between the accounting system and the direction system. Other of import issues refering TCM are TCM and organisational acquisition environing it ( Kato-Okano. 1995 ) . TCM and environmental issues ( Green TCM ) . Continuous Acquisition and Life Cycle Support ( CALS ) ( Iwaguchi-Tani. 1996 ) . TCM and its planetary networking including transferability ( Kato ( 1993 ) . Okano ( 1995a. B ) . Bhimani-Okano ( 1995 ) ) . international comparing of TCM: the Nipponese context11 versus the international 1. and so on.
Notes:
1 Refer. for illustration. in the academic field. to the recent researches on Nipponese direction accounting which are presented at the EAA ( European Accounting Association ) and AAA ( American Accounting Association ) meetings. and. in the practical field. to the CAM-I ( Consortium for Advanced Manufacturing. International ) . 2 In this seminar. many instances ( Cooper. 1994a-b ) were presented by Cooper and discussed before being condensed and published ( Cooper. 1995 ) . 3 TCM publications in academic diaries are still non accepted in the US due to the mutual exclusiveness of the research methodological analysis with Japan. 4 Refer to the Japan Accounting Association’s study ( JAA. 1994 ) which will be finalized and published both in Nipponese and English. 5 In Toyota. the individual in charge of cost appraisal is called “CL” and used to be normally a design applied scientist or a purchasing staff. 6 Toyota has two ways of direction. The “vertical management” ( direction by section ) consists of the net income direction sing each of the undermentioned issues: division and country ( North America. Europe. etc. ) and mills.
On the other manus. “the horizontal management” ( direction by nature of disbursals ) consists of direct labour. direct costs by mill. fixed costs. gross revenues and logistics. and administrative disbursals. In add-on to that. a direction by nucleus unit or nucleus constituent is going of import in Toyota. 7 But this does non intend that engineering focused TCM had non been implemented before: in 1980 a particular TCM undertaking concentrating on nucleus constituents for FWD ( Front Wheel Drive ) autos was introduced. 8 Kaizen cost direction for each merchandise was introduced by Monden in 1995. 9 Determination of mark costs mentioning to Shimizu ( 1996 ) . 10 This is related to what Porter referred to as cost leading and distinction ( Porter. [ 1980 ] [ 1985 ] ) . The relation between this type of scheme and TCM must be examined ( Accounting Frontier Forum. 1994 ) . 11 Okano ( 1995b ) defined “Japanese Management Accounting” from the point of view of visibleness and invisibleness of accounting.
Mentions
Accounting Frontier Forum ( 1994 ) Frontier of Management Accounting. Chuokeizaisha ( in Japanese ) . Bhimani. A. & A ; H. Okano ( 1995 ) “Target Excellence: Target Cost Management at Toyota in the UK” . Management Accounting ( UK ) . Vol. 73. No. 6. Clark. K. B. & A ; T. Fujimoto ( 1991 ) Product Development Performance: Strategy. Organization. and Management in the World Auto Industry. Boston. Mass. : Harvard Business School Press. 1991. Cooper. R. ( 1994a ) “Cost Management in a Confrontation Strategy: Lessons From Japan” ( sample faculty ) . Harvard Business School Publishing. Cooper. R. ( 1994b ) “Cost Management in a Confrontation Strategy: Lessons From Japan ( Instructor’s guide ) . Harvard Business School Publishing. Cooper. R. ( 1995 ) When Thin Enterprises Collide: Competing Through Confrontation. Boston. Mass. : Harvard Business School Press. Iwabuchi. Y. & A ; T. Tani ( 1996 ) “CALS and Strategic Cost Management” . Kigyo Kaikei. Vol. 48. No. 2Aiin JapaneseAj. Japan Accounting Association ( 1994 ) Report of the Special Committee on Target cost Management ( Final Draft ) . Japan Accounting Association. Johnson H. T. & A ; R. S. Kaplan ( 1987 ) Relevance Lost: The Rise and Fall of Management Accounting. Boston. Mass. : Harvard Business School Press. Kajita. M. ( 1994 ) “Transferring Target Cost Management: Nissan UK’s Case” . Business Insight ( University of Kobe ) . Spring. Kato. Y. ( 1993 ) Target Cost Management: A Strategic Cost Management System. Tokyo: Nihon Keizai Shinbunsha. Kato. Y. ( 1994 ) “Future Direction of Target Cost Management Research” . Kokumin Keizai Zasshi ( University of Kobe ) . Vol. 169. No. 5 ( in Japanese ) . Kato. Y. ( 1995 ) “Japanese Management Accounting in US Universities” . Kokumin Keizai Zasshi. Vol. 171. No. 4 ( in Japanese ) .
Kato. Y. & A ; H. Okano ( 1995 ) “Target Cost Management and Organizational Learning” . Paper presented at Nikkei Kodo Conference. April 1-2. 1995 ( in
Nipponese ) . Monden. Y. ( 1994 ) Cost Reduction Systems: Target Costing and Kaizen Costing. Cambridge. Mass. : Productivity Press. . Nishida. H. ( 1995 ) Product Development of Sharade by Daihatsu. Nikkan Kogyo Shinbunsha. Nobeoka. K. ( 1993 ) “Multi-Project Management: Scheme and Organization in Automobile Product Development” . Ph. D. Dissertation. MIT. Sloan School of Management. Okano. H. ( 1995a ) “Target Cost Management at Toyota” . Paper Presented at the Sponsors Meeting. International Motor Vehicle Program. Massachusetts Institute of Technology. June 4-7. 1995. Okano. H. ( 1995b ) Nipponese Management Accounting: A Historical and Institutional Perspective. Tokyo: Chuo Keizaisha ( in Japanese ) . Okano. H. ( 1995c ) “Target Cost Management: An Approach for Recovering Relevance” . Kigyo Kaikei ( Accounting ) . Vol. 47. No. 12 ( in Japanese ) . Okano. H. & A ; N. Shimizu ( 1994 ) “The future Direction of Research and Education on Nipponese Cost Management” . Presented at the Annual Conference of Western Division of Japan Cost Accounting Association. Dec. 16. 1994. Porter. M. E. ( 1985 ) Competitive Strategy. New York: The Free Press. Porter. M. E. ( 1985 ) Competitive Advantage. New York: The Free Press. Riley. D. ( 1987 ) “Competitive Cost Based Investment Strategies for Industrial Companies” . in Manufacturing Issues. New York: Booz. Allen. and Hamilton. Sakakibara. K. ( 1995 ) R & A ; D Management in Nipponese Companies. Tokyo: Chikura Publishing. Co ( in Japanese ) . Shank. J. K. & A ; V. Govindarajan ( 1993 ) Strategic Cost Management: The New Tool for Competitive Advantage. New York: The Free Press.
Shields. M. D. . C. W. Chow. F. J. Deng & A ; Y. Kato ( 1995 ) “Antecedents and Consequences of Standard-Based Control Systems for Knowledge Workers: Survey of Automobile Design Engineers” . Discussion Paper Series. School of Business Administration. Kobe University. Shimizu. N. ( 1996 ) “On the Significance of Target Cost Management as Profit Management” . Kaikei ( Accounting ) . Vol. 149. No. 2 ( in Japanese ) . Yamamoto. K. ( 1993 ) “ABC as Target Cost Management on Overhead” . Economicss Research ( Osaka Prefecture University ) . Vol. 39. No. 1 ( in Japanese ) .
