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1 – 10 of over 172000Alan Reinstein and Mohammed E. Bayou
Develops a continuum of product costing systems (PCSs) and demonstrates its application to making managerial decisions. Explains the relevance of this structure to managerial…
Abstract
Develops a continuum of product costing systems (PCSs) and demonstrates its application to making managerial decisions. Explains the relevance of this structure to managerial issues including inventory control, pricing, special decisions and product design. Synthesizes various PCSs into a coherent structure and introduces new PCSs such as direct costing and super direct costing (which are different from the classic variable costing and super variable costing) systems. Explains how the continuous nature of issues facing management needs a matching continuum of an endless number of PCSs.
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Robert Kee and Michele Matherly
This paper examines how target costing decisions can be impacted by product and production interdependencies.
Abstract
Purpose
This paper examines how target costing decisions can be impacted by product and production interdependencies.
Design/methodology/approach
Numerical examples are used to investigate the effect that product and production interdependencies have on target costing decisions. Mixed integer programming and simulation are used to model the interrelationships between a product’s cost reduction effort and related decisions such as product mix, pricing, and capacity acquisition. Product and production interdependencies are introduced by evaluating a product with multiple price and demand options, capacity is acquired in large discrete quantities, and resources have economies of scale. Analyses of choices made with and without considering product and production interdependencies are used to evaluate their effects on target costing decisions.
Findings
A product’s cost reduction effort cannot be determined independently of other production-related choices, such as product mix, capacity, and price, in the presence of product and production interdependencies.
Research implications
The findings of this paper underscore the need for additional research to understand the conditions that impair target costing decisions and the economic consequences of suboptimal decisions.
Practical implications
Rather than assessing target costing decisions at the individual product level, these decisions must be evaluated at the portfolio level of the firm’s operations.
Social implications
Suboptimal target costing decisions impact the products and product mix that the firm chooses to offer, which affects the ability of organizations to effectively achieve their strategic goals.
Originality/value
This paper identifies new limitations to target costing that can help managers understand the technique better and lead to improved target costing decisions.
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Robert Kee and Michele Matherly
For firms using target costing, separating decision management from decision control helps to minimize the agency costs incurred throughout a product's economic life. Prior…
Abstract
For firms using target costing, separating decision management from decision control helps to minimize the agency costs incurred throughout a product's economic life. Prior literature focuses on decision-management issues related to target costing, such as new product development (i.e., initiation) and production (i.e., implementation). In contrast, this article highlights the decision control aspects of target costing, which consist of ratifying product proposals and monitoring the product's implementation. While products initiated with target costing are chosen because they meet their allowable cost, product ratification requires assessing how well products contribute toward strategic goals, such as improving the firm's market value. To facilitate the ratification decision, this article develops an equation for determining a product's net present value (NPV) based on the same accounting data used during the initiation process. The article also describes monitoring a product's implementation through periodic comparisons to flexible budgets and a post-audit review at the end of the product's economic life.
Marc Wouters and Susana Morales
To provide an overview of research published in the management accounting literature on methods for cost management in new product development, such as a target costing, life…
Abstract
Purpose
To provide an overview of research published in the management accounting literature on methods for cost management in new product development, such as a target costing, life cycle costing, component commonality, and modular design.
Methodology/approach
The structured literature search covered papers about 15 different cost management methods published in 40 journals in the period 1990–2013.
Findings
The search yielded a sample of 113 different papers. Many contained information about more than one method, and this yielded 149 references to specific methods. The number of references varied strongly per cost management method and per journal. Target costing has received by far the most attention in the publications in our sample; modular design, component commonality, and life cycle costing were ranked second and joint third. Most references were published in Management Science; Management Accounting Research; and Accounting, Organizations and Society. The results were strongly influenced by Management Science and Decision Science, because cost management methods with an engineering background were published above average in these two journals (design for manufacturing, component commonality, modular design, and product platforms) while other topics were published below average in these two journals.
Research Limitations/Implications
The scope of this review is accounting research. Future work could review the research on cost management methods in new product development published outside accounting.
Originality/value
The paper centers on methods for cost management, which complements reviews that focused on theoretical constructs of management accounting information and its use.
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Estimating product cost at the design stage, often referred to as product costing, is vitally important in the product configuration process in the mass customization paradigm…
Abstract
Purpose
Estimating product cost at the design stage, often referred to as product costing, is vitally important in the product configuration process in the mass customization paradigm. There are three research streams in this field: analogous, statistical, and analytical methods. However, in a mass customization environment, these methods suffer the drawbacks of poor accuracy, low‐agility and an undesirable degree of detail. It is imperative to develop an efficient framework for product costing in mass customization. The paper aims to address these issues.
Design/methodology/approach
Activity‐based costing (ABC) becomes a new trend in product costing which alleviates the shortcomings discussed above. However, the complexity of ABC probably increases in mass customization with a high degree of variety. In this research, a framework is formalized for product costing in mass customization, in which a generic activity definition is proposed to simplify and catalyze ABC practice in high‐variety production. Moreover, an activity dictionary with a hierarchical structure is developed to bring commonality and modularity to the storage and retrieval of activity data.
Findings
A generic activity‐dictionary‐based method for product costing in mass customization is developed.
Research limitations/implications
The method proposed for product costing provides valuable cost data for product specifications, as well as the activities to create them. Therefore, a product configuration solution can be financially evaluated and optimized.
Practical implications
Based on the methodology proposed, a prototype system has been developed and implemented in a computer‐assembling company.
Originality/value
This paper alleviates the negative impact of activity variety on product costing.
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David Ray, John Gattorna and Mike Allen
Preface The functions of business divide into several areas and the general focus of this book is on one of the most important although least understood of these—DISTRIBUTION. The…
Abstract
Preface The functions of business divide into several areas and the general focus of this book is on one of the most important although least understood of these—DISTRIBUTION. The particular focus is on reviewing current practice in distribution costing and on attempting to push the frontiers back a little by suggesting some new approaches to overcome previously defined shortcomings.
Marc Wouters, Susana Morales, Sven Grollmuss and Michael Scheer
The paper provides an overview of research published in the innovation and operations management (IOM) literature on 15 methods for cost management in new product development, and…
Abstract
Purpose
The paper provides an overview of research published in the innovation and operations management (IOM) literature on 15 methods for cost management in new product development, and it provides a comparison to an earlier review of the management accounting (MA) literature (Wouters & Morales, 2014).
Methodology/approach
This structured literature search covers papers published in 23 journals in IOM in the period 1990–2014.
Findings
The search yielded a sample of 208 unique papers with 275 results (one paper could refer to multiple cost management methods). The top 3 methods are modular design, component commonality, and product platforms, with 115 results (42%) together. In the MA literature, these three methods accounted for 29%, but target costing was the most researched cost management method by far (26%). Simulation is the most frequently used research method in the IOM literature, whereas this was averagely used in the MA literature; qualitative studies were the most frequently used research method in the MA literature, whereas this was averagely used in the IOM literature. We found a lot of papers presenting practical approaches or decision models as a further development of a particular cost management method, which is a clear difference from the MA literature.
Research limitations/implications
This review focused on the same cost management methods, and future research could also consider other cost management methods which are likely to be more important in the IOM literature compared to the MA literature. Future research could also investigate innovative cost management practices in more detail through longitudinal case studies.
Originality/value
This review of research on methods for cost management published outside the MA literature provides an overview for MA researchers. It highlights key differences between both literatures in their research of the same cost management methods.
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Mohamed E Bayou and Alan Reinstein
Since quality cannot be manufactured or tested into a product but must be designed in, effective product design is a prerequisite for effective manufacturing. However, the concept…
Abstract
Since quality cannot be manufactured or tested into a product but must be designed in, effective product design is a prerequisite for effective manufacturing. However, the concept of effective product design involves a number of complexities. First, product design often overlaps with such design types as engineering design, industrial design and assembly design. Second, while costs are key variables in product design, costing issues often arise that add more complexities to this concept.
The management accounting literature provides activity-based costing (ABC) and target costing techniques to assist product design teams. However, when applied to product design these techniques are often flawed. First, the product “user” and “consumer” are not identical as often assumed in target costing projects, and instead of activities driving up the costs, managers may use budgeted costs to create activities to augment their managerial power by bigger budgets and to protect their subordinates from being laid off. Second, each of the two techniques has a limited costing focus, activity-based costing (ABC) focusing on indirect costs and target costing on unit-level costs. Third, neither technique accounts for resource interactions and cost associations.
This paper applies the new method of associative costing (Bayou & Reinstein, 2000) that does not contain these limitations. To simplify the intricate procedures of this method, the paper outlines and illustrates nine steps and applies them to a hypothetical scenario, a design of a laptop computer intended for the college-student market. This method uses the well-known statistical techniques of clustering, Full Factorial design and analysis-of-variance. It concludes that in product design programs, the design team may need to make tradeoff decisions on a continuum beginning with the design-to-cost point and ending at the cost-to-design extreme, as when the best perceived design and the acceptable cost level of this design are incongruent.
One of the most important aspects of managerial accounting is the accumulation of costs in the manufacturing process. This data is of value to the manager owing to the information…
Abstract
One of the most important aspects of managerial accounting is the accumulation of costs in the manufacturing process. This data is of value to the manager owing to the information it provides him for planning, control, and decision making. The purpose of this paper is to describe the different costing systems, compare them, and show how they affect the accumulation of costs for product costing, as well as decision making.