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Questions
Management accounting techniques has changed significantly over the past two decades due
to the changes in the business environment
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You will need to identify any TWO (2) companies that have successfully
implemented the SMA technique that has been allocated to your group
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Your answer should also include an evaluation of the
challenges faced by the organization when implementing the technique which you have
selected
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0 Introduction
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0 Target Costing
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1 Target costing of Toyota
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2 Target Costing of IKEA
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0 Kaizen Costing
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1 Kaizen costing in Nestle
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2 Kaizen in Ford
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0 Challenges Faced by Organizations
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0 Solution for the organizations
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0 Poster
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0 References
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0 Introduction
Strategic Management Accounting can be defined as the provision and investigation in
management accounting data regarding to a business as well as its competitors in order to
expand and supervising business strategy (Simmonds,1981)
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Strategic Management Accounting consists of extending the internal scope of traditional
management accounting to contain competitor’s information
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Furthermore,
obtaining competitive advantage by identifying approaches of reduce costs and improving a
company product’s differentiation, exploiting value chain connection and improving cost
drivers
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d
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Moreover, cost leadership strategies and accurate economic forecast will help
businesses to increase their market share
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These benefits provides the company with more revenues and the ability
to expand its activities or penetrate new market
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(Vitez, 2017)

1

2
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Target costing is an attempt at the planning and development
period of an item life cycle, to achieve a predetermined cost that is settled on by the board
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(Bragg, 2019)
The steps in target costing include:
1) Conduct research - The company will conduct research regarding to what product that
the customers are interested in
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3) Engineer the product – In this step, the product is in charged by engineers and
procurement personnel to produce the product
4) Ongoing activities – In this step, cost reduction in product cost will be conducted
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(Bragg, 2019)
Target costing can be calculated by:
Target costing = Selling Price – Profit Margin
Example:
A company decided to sell a product $10 per unit, the company wants to earn a profit margin
of 10%
Target cost = $10 - $1
Target cost = $9 per unit
Advantages of Target Costing:
1) It shows the dedication of the management to handle improvements and product
creativity to achieve competitive advantages
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Therefore, it is easier to satisfy
customer
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2

4) The designation and manufacture of the product is getting more market-driven
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1 Target costing of Toyota
Toyota Motor Corporation, Japanese Toyota Jidōsha KK, Japanese parent company of the
Toyota Group
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A large portion of its almost 600 subsidiary companies are associated with
the creation of automotive, automotive parts, and commercial and modern vehicles
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The business division thinks of the proposed
creation volume, by taking past numbers and ordering them to market trends and the condition
of contenders
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The cost plan depends on the item plan and the target for retail cost and creation
volume
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At the point when Toyota estimates the approximate expenses of another model it doesn't just
include all the expenses of the updated model, however rather it totals the cost varieties of the
new model and the old one
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It enables the particular divisions to appreciate the
cost variances
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This function
is determined by the cost director meeting with every department manager to agree on the
appropriate cost reduction for that particular department, and then each department has the
obligation to implement those reductions in its own particular way
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2 Target Costing of IKEA
Originally, IKEA only sold wallets, pens, watches, frames and jewellery
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IKEA is working with more than 1,500 suppliers
worldwide and designing its own furniture in about 50 countries around the world
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IKEA is known for its items named after small
Swedish towns, modern designs, flat packaging and do-it-yourself instructions, and has
developed from modest initially to the world's biggest furniture retailer
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Ikea prices are normally 30% -50% lower
than those of competitors
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When IKEA produces standard products, they can also achieve economies of scale without
time-consuming machine and equipment replacement
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In order to keep logistics costs low, it is
ready for assembly design, so it is shipped in flat packs
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Moreover, most shipments
are finished by using guide rails and unassembled furniture
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IKEA offers a wide range of well-designed, fully functional home products at affordable prices
that are affordable to as many people as possible
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A central theme is the socalled IKEA standardized approach: IKEA's core value is to work a similar path in each country
where it works
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Toyota set goals to reduce costs, and then tried to accomplish these new goals through design
changes to achieve the goal of reducing expenses
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Hence, Ikea will considering the price first and keep the costs as low as possible
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The management might take a look at the product when
the products is done with the cheapest price
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By applying this method, management of Toyota will directly removes the variable costs of
two models bring about, like wages and indirect costs, and they can only make decisions based
on the changing costs between the two models relative to design and production
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For
example, they need to figure out which materials are suitable and the costs are not expensive
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All in all, every department need to make some contribution on it
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0 Kaizen Costing
Kaizen costing is the continuous cost reduction mechanism that happens when a product design
is finished and going to the production process
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It is a method of cost-reduction which is implemented to a
product in production
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Both word combined means continuous improvement and the goal is to increase productivity
through incremental modifications to the entire production process
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Additional aspect includes maintaining quality management, using more reliable tools,
making use of modern technical advances and standardizing work
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d
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Another
types is product model particular costing activities conducted in dedicated program with an
extra focus regarding to value analysis
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It’s a process go
through cost reduction even at production phase
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Kaizen costing includes 5 step, which is Seiri (Sort), Seiton (Straighten), Seiso (Shine),
Seiketsu (Standardize) and Shitsuke (Sustain)
1) Seiri (Sort)
The first step requires the company to categorize the products according to their
necessity
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These products may be sold to the workers or as waste
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Now the organization has to organize these
item to simplify the operations, which increase the approachability, visibility and
availableness of the items
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4) Seiketsu (Standardize)
To create a standards for usability, maintaining and usability for daily operation
5) Shitsuke (Sustain)
The last step require the company to contact and teach the workers regarding to the
changes
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(C, 2019)

3
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These productions include snacks, dairy products and also baby food
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Then, the
company used NCE to reduce the cost while improving the production for the company
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It can help on reduce the wastage of the material and save the cost
and apply to another plan of the project
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For example, the employee can make double
production after training then company can save the cost to recruit more employee
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2 Kaizen in Ford
Ford is one of the automotive companies which is famous among Malaysian because of the
pickup speed
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Their employee will be able
to speak out for their suggestion on the business
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By collecting the feedback,
the company can improve the services and the product together in a time
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It is aimed to develop a disciplined production system and it is set by a set of
rules and regulation which can enhance the teamwork in the company and provide good quality
goods and services to the customer
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They both use it
to control the expenses
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

Organize the operation efficiently

Kaizen helps the company to organize all the operational activity
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So, it
can help on managing it efficiently
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For development of a plan, nestle company choose to be controlled by the main
company
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On the other hand, Ford company is passing the suggestion from employee to
upper management
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0 Challenges Faced by Organizations
Challenges of Toyota’s target costing
Target costing show that organizations can't really control evaluating because that costs are
constrained by market prices
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Hence, target costs typically expect organizations to plan their production process
around acceptable expenses
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Challenge of Ikea’s target costing
Although Swedish prices are falling every year, Swedish furniture sales are moderately high in
the United States, so IKEA is looking for a solution
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Countries like Japan, IKEA must
customize products and packaging to their own taste, because previously, when IKEA proposed
standards, IKEA failed to address this issue, so they now keep up standardization by keeping
up the average costs and reducing disposable income Economic concerns, this is for the IKEA
business committed to the UK and US markets
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Therefore, it will need to apply for approval which require a lot of
process from lower to upper
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So, it required a lot
of time for waiting the process being approve
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Besides, not only one department is involved, so it has to approved by all of
the department in the company before working the plan out
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It has a lot
of different on counting the cost and data
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They still believe that it is faster by using the method that
they are used to it
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Most of the employee refuse to accept the challenge to learn a new thing
which may lead to a better production
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(Bulsuk, 2011)


Maintaining the product standard

Since the Kaizen is used to reduce cost and increase the production, then the quality might
be affected due to the cost
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If the cost is reduced,
then the quality of the product might be lower because the company have to choose for a
lower cost on purchasing the material
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(Bulsuk,
2011)

Challenges in applying kaizen costing onto FORD


It’s a Long-term plan

Kaizen costing is tough to learn and apply for all the workers
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(Bulsuk, 2011)


Requirement of training

This process required the employee to handle the process since it is a system which need
to keep on track
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(Bulsuk, 2011)

10

5
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It does not require Toyota to
purchase cheap material in order to reach target cost
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Solution for IKEA
Buy insurance from 3rd party
Carriers usually charge higher fees than third party, so if IKEA use third party companies,
IKEA will gain some cost reduction in delivery fees
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The management can also apply Kurt Lewin Change Management model to
help employee switch to Kaizen Costing
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By bulk purchasing, Nestle can get a
better price from supplier when acquiring material with standard quality
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By slowly improving,
the company will achieve its desired result eventually
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Kaizen costing is a method which require employees to be high quality in order
to improve the operation
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0 Poster

13

7
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(1981), “Strategic management accounting”, Management Accounting
59:pp
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davidkigerinfo, V
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The Best Examples Of Companies Using Kaizen In The Real World
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Available at:
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com/2017/06/20/the-best-examples-of-companies-usingkaizen-in-the-real-world/> [Accessed 15 March 2020]
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n
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Kaizen In The Automotive Industry | Rever
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com/learn-kaizen/kaizen-business-case-basics/automotive-industry/>
[Accessed 18 March 2020]
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tpnsindia
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2020
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[online] Available at:
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org/index
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Agarwal, R
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d
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[Online]
Available at: http://www
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com/accounting/managementaccounting/strategic-management-accounting-definition-and-techniques/53105
[Accessed: 22 3 2020]
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, n
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corporatefinanceinstitute
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com/resources/knowledge/accounting/targetcosting/
[Accessed: 22 3 2020]
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, 2019
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[Online]
Available at: https://www
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com/articles/2017/5/14/target-costing
[Accessed: 24 3 2020]
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, 2011
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[Online]
Available at: https://www
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com/2011/10/why-kaizen-implementation-fails-six
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C, P
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theinvestorbook
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com/kaizen-costing
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Miazi, M
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, n
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academia
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academia
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Pitcher, D
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S
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cimaglobal
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cimaglobal
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pdf
[Accessed: 22 3 2020]
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, 2017
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[Online]
Available at: https://bizfluent
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html
[Accessed: 22 3 2020]

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Title: Management Accounting - Target Costing and Kaizen Costing
Description: This assignment discuss what is target costing and kaizen costing. How Toyota, IKEA implement Target costing and how Nestle and Ford implement Kaizen Costing.

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