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Book part
Publication date: 29 March 2016

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…

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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Details

Servitization Strategy and Managerial Control
Type: Book
ISBN: 978-1-78714-845-1

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Book part
Publication date: 23 September 2014

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

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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Article
Publication date: 23 October 2009

Ying‐Chin Ho and Chih‐Hsin Lin

The problem that original design manufacturing (ODM) companies encounter with the request for quotation (RFQ) process is that there is no effective and efficient…

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1468

Abstract

Purpose

The problem that original design manufacturing (ODM) companies encounter with the request for quotation (RFQ) process is that there is no effective and efficient methodology for them to formulate accurate and profitable RFQs. The purpose of this paper is to present a quality function deployment (QFD)‐, concurrent engineering (CE)‐, and target costing‐based methodology for ODM companies to formulate accurate and profitable RFQs.

Design/methodology/approach

From eight Taiwan electronics ODM companies, 15 people are interviewed to understand their current methods for formulating RFQs and the problems of these methods. Based on the interview results, it was decided to make use of the merits of QFD, CE, and target costing by integrating them into the proposed methodology.

Findings

A case study is presented to illustrate a successful application of the proposed methodology in a case company. The case study shows integrating QFD, CE, and target costing into the proposed methodology allows the authors to effectively and efficiently formulate an accurate and profitable RFQ for the case company.

Research limitations/implications

The interview sample quantity of this study is limited to eight Taiwan electronics companies, which is insufficient to represent all ODM companies in various industries. For the future research, it is suggested researchers collect more samples from different industries in order to verify the effectiveness of the proposed methodology in ODM companies from different industries.

Originality/value

This paper aims to integrate QFD, CE, and target costing to come up with a systematic ten‐step approach that can accurately formulate the three parts of an RFQ: the product specifications proposal, the product price quotation, and the product development schedule. By adopting this methodology, ODM companies can provide accurate and profitable RFQs to ODM customers, thus increasing their chances of obtaining ODM business.

Details

Journal of Manufacturing Technology Management, vol. 20 no. 8
Type: Research Article
ISSN: 1741-038X

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Article
Publication date: 19 April 2011

Ari Pennanen, Glenn Ballard and Yrjänä Haahtela

Target costing determines the cost of a building before design. The cost of the product is based on the customer's requirements for the product's performance and the…

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3169

Abstract

Purpose

Target costing determines the cost of a building before design. The cost of the product is based on the customer's requirements for the product's performance and the customer's willingness to pay for such performance. However, if the designers cannot achieve the target cost, the benefits of target costing are wasted. The purpose of this paper is to describe design steering, a methodology for managing design process to achieve target cost and purposed value for the customer.

Design/methodology/approach

The design steering concept steers the complex design process by knowledge management and rapid cost feedback loops, especially in the very early stages of design. Traditional estimating together with CAD systems cannot produce feedback because of the cumulative nature of design. This paper introduces advanced building information modelling (BIM) that supports project management in cost and quality management. As CAD systems start from zero, this BIM starts from the full content. The BIM constructs all the quantities and costs of the building components before the design starts, basing on the client's needs. The model acts as a “defending champion” in relation to the designer's proposals during the design.

Findings

Design steering concept is already in commercial use with encouraging results. A case study explains how design steering affects to designers' decision making. Design steering has helped mutual understanding between the designers and management enabling to achieve the target cost.

Research limitations/implications

At the moment more transparency on goals, processes and information models of clients, project managers and designers are needed in order to support the commitment process of the participants.

Originality/value

Design process has not been earlier dealt with from top to bottom, but from bottom to top. New BIM technologies enable both perspectives.

Details

Journal of Financial Management of Property and Construction, vol. 16 no. 1
Type: Research Article
ISSN: 1366-4387

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Article
Publication date: 1 September 2006

Patricia Everaert, Stijn Loosveld, Tom Van Acker, Marijke Schollier and Gerrit Sarens

Despite appearing in the literature over 10 years ago as a potentially exciting cost management technique, there is still limited agreement about the nature of target

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5658

Abstract

Purpose

Despite appearing in the literature over 10 years ago as a potentially exciting cost management technique, there is still limited agreement about the nature of target costing. The purpose of this study is to explore the characteristics of target costing, and to test whether these characteristics were adopted in three European companies that used target costing.

Design/methodology/approach

This paper draws on case study data, collected at three manufacturing companies (consumer electronics, machinery, and transportation equipment).

Findings

The paper identifies eight characteristics of target costing, based on the early Japanese case descriptions. These characteristics are related to the way a target is set and how progress towards that target is measured. The findings of the case studies confirm these characteristics. However, some differences were found regarding the interpretation of the strict rule that “the target cost cannot be exceeded at product launch”.

Research limitations/implications

The results indicate that future research on the adoption of target costing cannot be disconnected from its characteristics. Further studies might investigate whether degree of openness to suppliers, leadership position, time pressure and position in the supply chain can explain the noted differences in characteristics among companies.

Practical implications

The characteristics identified in this paper provide an aid to researchers and managers considering target costing. Detailed case descriptions provide best practices examples for other companies.

Originality/value

This study is the first empirical paper concerned with describing the typical characteristics of target costing. By exploring the characteristics, we hope to inspire others to further explore this interesting phenomenon.

Details

Qualitative Research in Accounting & Management, vol. 3 no. 3
Type: Research Article
ISSN: 1176-6093

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Article
Publication date: 6 February 2007

Caleb J. Rattray, Beverley R. Lord and Yvonne P. Shanahan

As there is scant research outside Japan on the implementation of target costing, the purpose of this research is to examine target costing practices in New Zealand.

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3302

Abstract

Purpose

As there is scant research outside Japan on the implementation of target costing, the purpose of this research is to examine target costing practices in New Zealand.

Design/methodology/approach

A mail questionnaire survey was sent to 80 New Zealand manufacturers, with a response rate of 31 (39 per cent).

Findings

A total of 12 of the 31 respondents use target costing. Findings on the use of target costing that contrast with or add to prior studies include the following: target costing is being applied to existing products; the manufacturing department is highly involved in target costing; the involvement of suppliers in target costing is relatively low; considerable adjustments are made to the calculated allowable costs, especially in order to assist sales of future products and to ensure the achievement of target costs; and higher achievement of target costs is associated with higher firm performance. The goals of target costing and the departments involved in the practice were similar to those in prior studies.

Research limitations/implications

The sample size and minimal number of firms actually using target costing has made it difficult to obtain statistically significant results. The survey method prevents follow‐up questions and clarification of ambiguities. Single measures of performance and strategy were used.

Originality/value

This survey provides academic researchers and teachers and firms implementing or using target costing systems with a greater understanding of how target costing is being used by New Zealand manufacturers, as well as adding to the scant research on target costing outside Japan.

Details

Pacific Accounting Review, vol. 19 no. 1
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 1 March 1995

Margaret L. Gagne and Richard Discenza

Focusses on the use of target costing for new product development.This approach concentrates on determining costs for a product during theplanning and design stage. Also…

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15334

Abstract

Focusses on the use of target costing for new product development. This approach concentrates on determining costs for a product during the planning and design stage. Also describes the use of cross‐functional teams made up of industrial marketers, cost accountants and others critical to the design and manufacturing decisions required for determining the price and features with which a product is most likely to appeal to potential buyers. After deducting the desired profit margin from the projected selling price, planners develop estimates of each product element that make up a product′s costs for design, manufacturing, sales and marketing. Further analysis is carried out to identify and estimate the cost of each component that makes up the finished product. Stresses the critical role that management accountants and other members of an organization can play in the design and manufacture of a new product at a specified price.

Details

Journal of Business & Industrial Marketing, vol. 10 no. 1
Type: Research Article
ISSN: 0885-8624

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Article
Publication date: 31 December 2007

Lisa Jack and James V.H. Jones

The use of management accounting in the agricultural industry has received very little attention by accounting researchers. Agriculture is currently in an era of…

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1403

Abstract

The use of management accounting in the agricultural industry has received very little attention by accounting researchers. Agriculture is currently in an era of significant change and adjustment, where change in accounting practice needs to occur in response to external pressures. The traditional use of the gross margin system of accounting has tended to underline a notion that has had a powerful influence on farm business planning that most costs are fixed and that the best way of reducing them to achieve profit maximisation is to spread them by increasing the scale of operation. This logic has been supported by an economic environment heavily influenced by agricultural policy measures that focused on artificial support for market prices and/or direct payments linked to production activities. We argue that the decoupling of support from production has combined with a number of other changes related to payments and cost structures (including those linked to the recent dramatic rise in the price of oil) to provide a very different economic context for farm business planning. The response we advocate to this changed situation is to make greater use of two alternative methods of cost analysis; namely relevant costing and target costing. These have been developed and applied outside agriculture. They have not so far been used in a formal sense within agriculture but have links to existing methodologies used in farm business planning, such as partial budgeting, and in intuitive approaches already adopted by farmers as revealed in recent fieldwork.

Details

Journal of Applied Accounting Research, vol. 8 no. 3
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 1 March 2005

Marilyn M. Helms, Lawrence P. Ettkin, Joe T. Baxter and Matthew W. Gordon

The target costing method works “backward” from traditional cost‐plus methods and begins with a targeted sales price for a product. This price is set based on what the…

Abstract

The target costing method works “backward” from traditional cost‐plus methods and begins with a targeted sales price for a product. This price is set based on what the customer is willing to pay. It considers not only the preferred current selling price but also the later life cycle pattern of prices. This technique has key managerial implications. This article considers these implications along with implementation guidelines. Examples of industries successfully using target costing are included. Ongoing controversies concerning where the techniques can best be used are discussed. Further considered are international differences in target costing as well as challenges of global outsourcing along the supply chain. The article ends with implementation challenges, significance for practice, and suggestions for future research.

Details

Competitiveness Review: An International Business Journal, vol. 15 no. 1
Type: Research Article
ISSN: 1059-5422

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