Target Costing: Nissan vs. Olympus
Target Costing: Nissan v. Olympus
Overview: Nissan Motor Company was the world’s 4th largest automobile manufacturer in 1990. They had 10% of the market for cars and trucks, with roughly 2 million passenger cars being produced each year. To increase its market share, Nissan implemented a plan to achieve domestic sales of 1.5 million cars by 1992. It also sought to obtain the number one rating in customer satisfaction. The company tried to develop a plan to produce a line of automobiles that matched consumer lifestyles. Nissan had a three stage process of introducing new models, the conceptual design stage, the product development stage, and the production stage, which typically took 10 years to complete. Olympus Optical Company was founded in 1919 as a producer of microscopes. The company developed its first camera in 1936 and by 1990 it was the world’s fourth largest camera manufacturer. The company had four major revenue producing divisions, a consumer products division, a scientific equipment division, an endoscope division, and a diagnostics division. Olympus relied heavily on the sales of its SLR camera models until a major shift in consumer preferences. When compact camera sales began to skyrocket, Olympus fell behind since it never established a market share for the compact camera market. Management then decided to reconstruct its camera business with a three year program.
Market-Driven Costing: At the Market-Driven costing level, initial profit planning and extensive market research are used to determine what price level the market will support. Existing products, market position, estimates of sales volume and consumer perceptions of value are considered. This information is then used to determine an appropriate range of prices or the allowable cost. “The allowable cost is the cost at which the product must be manufactured if it is to earn the target profit margin at the target selling price.” (Cooper, 398) This will not be the final target
Overview: Nissan Motor Company was the world’s 4th largest automobile manufacturer in 1990. They had 10% of the market for cars and trucks, with roughly 2 million passenger cars being produced each year. To increase its market share, Nissan implemented a plan to achieve domestic sales of 1.5 million cars by 1992. It also sought to obtain the number one rating in customer satisfaction. The company tried to develop a plan to produce a line of automobiles that matched consumer lifestyles. Nissan had a three stage process of introducing new models, the conceptual design stage, the product development stage, and the production stage, which typically took 10 years to complete. Olympus Optical Company was founded in 1919 as a producer of microscopes. The company developed its first camera in 1936 and by 1990 it was the world’s fourth largest camera manufacturer. The company had four major revenue producing divisions, a consumer products division, a scientific equipment division, an endoscope division, and a diagnostics division. Olympus relied heavily on the sales of its SLR camera models until a major shift in consumer preferences. When compact camera sales began to skyrocket, Olympus fell behind since it never established a market share for the compact camera market. Management then decided to reconstruct its camera business with a three year program.
Market-Driven Costing: At the Market-Driven costing level, initial profit planning and extensive market research are used to determine what price level the market will support. Existing products, market position, estimates of sales volume and consumer perceptions of value are considered. This information is then used to determine an appropriate range of prices or the allowable cost. “The allowable cost is the cost at which the product must be manufactured if it is to earn the target profit margin at the target selling price.” (Cooper, 398) This will not be the final target