Suppose you are having a conversation with Sandy, another student in this course. Sandy is confused about the differences and similarities between target costing and kaizen costing. Another student, Kevin, overhears your conversation with Sandy and insists that neither of these methods is beneficial. Kevin argues that some companies run into financial problems using these methods because their managers manipulated the cost estimates to appear however they wanted. If the managers wanted to launch a new product or keep an old one, they made sure their cost estimates supported their decision.

A. In your own words, explain how target costing and kaizen costing are the same and how they are different.
B. Compare the information needed to apply the target costing and kaizen costing methods:
1. List the types of relevant information needed for each method.
2. List the uncertainties in the relevant information for each method.
C. Discuss ways in which managers might be able to create biased estimates under a target or kaizen costing system.
D. Kevin argues that the types of issues you described in part (C) mean that target and kaizen costing are not beneficial. Discuss the validity of this argument.

  • CreatedJanuary 26, 2015
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