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Nissan Motor Company, Ltd: Target Costing System

In: Business and Management

Submitted By sayee77
Words 1544
Pages 7
1. What are the strengths and weaknesses of the target costing system?
First, target costing originally starts with mangers estimate the cost that customers are willing to pay and how competitor will price the same products or services. (Cost Accounting. Page 545). In the Nissan case, customers are very knowledgeable because the customer demand requires more variations and model types of automobiles. This is a favorable market for Nissan. Nissan managers can set an expected profit margin because the customers has a very high demand of automobiles and they know the automobiles market very well.
Second, target costing for a product includes direct manufacturing costs direct materials, direct manufacturing labor, and direct machining costs. (Cost Accounting. Page 519). Analyzing each cost element and eliminate the unnecessary value-added is one of the cost management goals in the target costing system. In order to have a competitive price, Nissan managers have to eliminate some value-added costs which are unnecessary and not so helpful for the automobile manufacturing and selling process. Target costing can shorten the product lives and save Nissan company time to do marketing and financial management. A good example in the Nissan case it that they eliminated the "five-door variant" because it is unnecessary.
Last, target costing system helps Nissan build a cross-functional team. The design department, manufacturing department, sales department and management department work together to analyze the cost drivers and eliminate the unnecessary steps. This is very helpful to build a healthy organizational culture through team work and cross department projects.
However, there are some weaknesses of the target costing system. Fist, every value-added cost has a reason to exist. It could be adding some function to the automobile, or it could be making the automobile look…...

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