Kaizen costing is a
cost reduction
Cost reduction is the process used by organisations aiming to reduce their costs and increase their profits, or to accommodate reduced income. Depending on a company’s services or products, the strategies can vary. Every decision in the produ ...
system used a product's design has been completed and it is in production. Business professor
Yasuhiro Monden defines kaizen costing as
The Shogakukan Dictionary's original definition of
Kaizen
is a Japanese concept in business studies which asserts that significant positive results may be achieved due the cumulative effect of many, often small (and even trivial), improvements to all aspects of a company's operations. Kaizen is put ...
is translated as ''“The act of making bad points better”.'' In English, the more popular definition of Kaizen is “Change for Better.” Many believe that the meaning of Kaizen is “continuous improvement,” but Kaizen is a ''result'' of continuous improvement. It exists at the employee level. The employee's goal is to reach their full potential, challenge the status quo and achieve continual improvement.
Prior to kaizen costing, when the products are in the development phase,
target costing
Target costing is an approach to determine a product's life-cycle cost which should be sufficient to develop specified functionality and quality, while ensuring its desired profit. It involves setting a target cost by subtracting a desired profit ...
is applied. After targets have been set, they are continuously updated to display past improvements and the projected (expected) improvements.
Monden has described two types of kaizen costing:
* Asset and organization-specific kaizen costing activities planned according to the exigencies of each deal
* Product model-specific
costing
Cost accounting is defined by the Institute of Management Accountants as "a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It inclu ...
activities carried out in special projects with added emphasis on
value analysis
Adopting kaizen costing requires a change in the method of setting standards.
Kaizen costing focuses on "cost reduction" rather than "cost control".
Types of cost under consideration
Kaizen costing takes into consideration costs related to the manufacturing stage, which include:
* Costs of
supply chain
A supply chain is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers, while supply chain management deals with the flow of goods in distri ...
* Legal costs
* Manufacturing costs
*
Waste
Waste are unwanted or unusable materials. Waste is any substance discarded after primary use, or is worthless, defective and of no use. A by-product, by contrast is a joint product of relatively minor Value (economics), economic value. A wast ...
* Recruitment costs
* Marketing, sales and distribution
* Product disposal
References
{{Reflist
External links
* Wawak S. (2016),
Kaizen costing', CEOpedia
Costs
Japanese business terms