Kaizen Costing

Topics: Costs, Cost, Toyota Production System Pages: 3 (790 words) Published: February 19, 2012
Milan Dave

Submitted to:
Prof. Parag Soni

* Kaizen Costing is the process of continuously reducing the costs that occur after a product design has been completed and is now in production. * Here, the costs can be reduced by working with the suppliers to reduce the costs in their processes; by implementing less costly re-designs of the product, or by reducing waste costs i.e. the costs behind the wastage of time, raw material and the other resources used for producing the product. * The term Kaizen is the Japanese word for “continuous improvement” or “change for better”.

Objectives and Meaning:
* The management determines the target cost reduction for a particular period (a month generally). Thereafter the production is carried out and the difference, if any, between actual and targeted cost is found out. The main objective of Kaizen costing is to minimize this difference by reducing the actual costs below the standard costs. This cost reduction activity is carried out throughout the entire production life cycle of that particular product. * Over and above this, it also tries to make the work environment more efficient and effective by creating a team atmosphere, improving day to day production activities and hence ensuring employee and customer satisfaction. * The cost reduction objective is obtained through Kaizen costing by reducing fixed and variable costs. An analysis is done during the designing stage of a new product and a target cost is set for each of the production function. After the production is carried out, the differences, if any, between the set costs and the actual costs are found out. The management thereafter tries to minimize this difference. i. For variable costs, the actual year’s production serves as a standard base for current production. ii. For fixed costs, its total budget is considered as a target which is lowered by a reduction rate. The actual...
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