Question
8.1a
Describe the procedure (as characterized by Cooper and Chew) that Isuzu Motors
goes through to allocate its target cost among major functional improvements to its
vehicles.
Ans:
Isuzu Motors’ target-costing system, like others, aims to keep prices constant while
adding as much functionality as possible to each new generation of vehicles. The
system therefore attaches great importance to determining what features and level of
performance the customer will want most, and it uses those preferences as the basis
for allocating costs to major functions and group components. Market researchers ask
customers to estimate how much they would pay for a given function. Then they
develop rations of preference by asking customers to estimate the relative importance
of each function on a 100-point scale.
8.1b
What are “tip-toe” objectives as discussed in the Cooper and Chew article, and what
is their role in target costing?
Ans:
Moreover, cost-reduction objectives must be achievable most of the time. Setting the
bar too high can be as damaging as having no bar at all; in fact, the Japanese set a
series of what they call tip-toe objectives, that is, objectives that may be reached by
“standing on tiptoes”—a stretch that strains the organization but does not defeat it.
Also, the requirements for product functionality must be clearly and publicly
articulated so that nobody tries to achieve the target cost by reducing product
functionality below acceptable levels. It is no good to reduce costs by shortchanging
customers.
8.2a
What are the six critical components of a target costing system ?
Ans:
 Price-led costing,
 Customer orientation,
 Focus on product and process design,
 Cross-functional teams,
 life-cycle cost reduction,
 Value chain involvement
8.2b
Was the M-class project a risky one for Mercedes Benz? Explain.
Ans:
In a new country and also develop a new product for a new marker segment. While
Japanese manufacturing plants built outside Japan typically copy Japanese factories
and models (at least at first), Mercedes simultaneously had a new work force. During
the early stages of products and process development, the popular press described the
Mercedes venture as a prescription for disaster because of the many variables and
unknowns involved.