Topics: Variable cost, Costs, Cost Pages: 3 (623 words) Published: May 30, 2011

The challenge in today’s industry is cutting product price in order to make maximum profits in a highly competitive environment. Every industry is under the pressure to cut costs. The challenge facing suppliers is to get better results at lower costs to enable price cuts and thus achieve higher profits. This however, requires sound methodology and knowledge of how to implement them because changes are not always as envisioned. In order to assure quality at the lowest possible cost, the concept of “Kaizen” was developed. Kaizen is a method of costing that involves making continual, incremental improvements to the production process during the manufacturing phase of the product/service lifecycle, typically involving setting targets for cost reduction. Yashihuro Monden, defines Kaizen costing as the maintenance of present cost levels for products currently being manufactured via systematic efforts to achieve the desired cost level. The two types of Kaizen costing are 1. Asset and organization specific Kaizen Costing

2. Product-Model-Specific Costing.
Kaizen costing together with Target costing for the concept of Life Cycle Costing.

Where can we apply this concept?
This concept can be applied in any industry which wants to achieve cost reduction. ( in a system whose focus is to reduce the estimations to a level that is lower than standard costs). The production area is by no means the only area within a company where kaizen can be implemented. Every department within a company can make continuous improvements in its operations by making small changes on a daily basis. An example of the Kaizen philosophy in action is the Toyota production system, in which suggestions for improvement are encouraged and rewarded, and the production line is stopped when a malfunction occurs. Toyota’s case:

The company’s upper management determines both the short-term target profit and the long-term sales-to-profit ratio, one year...
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