1. What is target costing? What types of firms use it?

Target costing is a system under which a company plans in advance for the price
points, product costs, and margins that it wants to achieve for a new product. If it
cannot manufacture a product at these planned levels, then it cancels the design
project entirely. With target costing, a management team has a powerful tool for
continually monitoring products from the moment they enter the design phase and
onward throughout their product life cycles. It is considered one of the most
important tools for achieving consistent profitability in a manufacturing environment.
Target costing is particularly popular among Japanese firms such as Toyota, Nissan,
Toshiba and Daihatsu Motor in various industries such as automobile manufacturing,
electronics, machine tooling, and precision machine manufacturing. Target costing in
Toyota • By using kaizen costing, teams of people from marketing, engineering,
purchasing, manufacturing and accounting work together to assure that a cost position
of the product is such that the company can sell product at its required market price and
make money by doing it.
2. What is life-cycle costing? Why is it used?
Life cycle costing is a method of adding up all the costs associated with an asset
starting from its initial cost to its end of life. It does not take into account the salvage
value or residual value of the asset. Life cycle costing provides an estimate of the cost
that an asset will incur in its lifetime. Life cycle costing calculation generally involves
adding six types of costs; purchase costs, maintenance costs, operational costs,
financing costs, depreciation costs, and end-of-life costs. Life cycle costing can be
highly beneficial to businesses of all types and sizes. It gives a realistic estimation of
costs over the course of a product's life. Generally, businesses have the tendency to
buy products that have a lower upfront cost. 
Using life cycle costing helps you make purchasing decisions. If you only factor in the
initial cost of an asset, you could end up spending more in the long run. For example,
buying a used asset might have a lower price tag, but it could cost you more in repairs
and utility bills than a newer model.
3. Name the five steps of the theory of constraints and explain the purpose of
each. Which is the most important step and why?
a. Identify the constraint
In order to increase the throughput of the system, you must alleviate the current
bottleneck — the thing currently limiting you from attaining your goal. A common failure
in identifying the constraint is the discovery of future assumed constraints. 
b. Exploit the constraint
Once the constraint is identified, you should maximize productivity at the constraint. In
other words, the constraint should be 100% utilized. As the constraint is the slowest or
most limiting aspect of the system in terms of attaining your goal, ensuring the
constraint is utilized is the first step in increasing throughput.
c. Subordinate everything else to the constraint
The constraint is the slowest or most limiting aspect of the system. Non-constraints
should therefore provide the constraint with exactly enough resources to fully utilize the
constraint. The constraint should never be starved of input.
d. Elevate the constraint
Once the productivity at the constraint has been maximized, the resources addressing
the constraint must be expanded in order to further increase the throughput of the
system. Increasing the capacity at the constraint requires investment, perhaps in
purchasing new equipment or hiring additional staff.
e. Avoid inertia and repeat the process
Once a constraint has been elevated, a new constraint will emerge within the system.
To further increase the throughput of the system, you must identify the new constraint,
exploit the new constraint, subordinate everything else to the new constraint, and then
elevate the new constraint. The process of on-going improvement is simply defined as
the repetition of these five focusing steps.
The most important step in five steps of the theory of constraints is the first on which is
identify the constraint. In a situation, you can’t do the other steps if you do not know to
identify the constraint because the remaining four steps will be based on the first step.
4. What does the term constraint mean in the theory of constraint analysis?
The Theory of Constraints is a methodology for identifying the most important
limiting factor (i.e., constraint) that stands in the way of achieving a goal and then
systematically improving that constraint until it is no longer the limiting factor. In
manufacturing, the constraint is often referred to as a bottleneck. A constraint is
anything that prevents a system from achieving a higher performance relative to its
goal. A system is any collection of interconnected parts sharing a common goal. The
Theory of Constraints was first applied to business systems.
5. What is the role of the flow diagram in the theory of constraints analysis?
A Network Diagram is a flowchart of the work done that shows the sequence of
processes and the amount of the time required for each. The purpose of the network
diagram is to help the management accountant look for signs of bottleneck.
6. How important is product design in life cycle costing? Why?
The product life-cycle is an important tool for marketers, management and designers
alike. It specifies four individual stages of a product’s life and offers guidance for
developing strategies to make the best use of those stages and promote the overall
success of the product in the marketplace. The product-life cycle provides guidance to a
business as it progresses a product from introduction, through growth and maturity to
decline. It is not designed to be a rigid tool and it is important that common sense and
general understanding of the market be used alongside the product-life cycle in order to
get the most value from it. Designers are most likely to be involved with the stages of
introduction, growth and maturity and be moving on to new projects when a product is in
decline.
7. What does the concept of value engineering mean? How is it used in target
Costing?
Value engineering is a systematic, organized approach to providing necessary
functions in a project at the lowest cost. Value engineering promotes the substitution of
materials and methods with less expensive alternatives, without sacrificing
functionality. It is focused solely on the functions of various components and materials,
rather than their physical attributes. Value engineering is also called value analysis.
With value engineering, cost reduction should not affect the quality of the product being
developed or analyzed.
The value engineering seeks to find potential areas for cost reduction during the product
design and planning phase as an integral to the target cost approach. The important
aspect of value engineering is to achieve a certain level of cost reduction.
8. What is the main difference between activity-based costing and the theory of
constraints? When is it appropriate to use each one?
An activity based costing is applied in two stages of activities.
Instead of a predetermined rate the activity based costing computes the cost driver for
each of the activity center. To provide the main source of information for activity-based
management
The theory of constraints is the process by which the company can achieve the goal for
the business provided the constraint factor is the most important limiting factor.
The company thus tries to improve this limiting factor or constraint in the process so that
improvement in the process is achieved in the future. To improve profit and system
optimization
9. For what types of firms is the theory of constraints analysis most appropriate
and why?
Using the theory of constraints, a company can focus its efforts and attention on the
business obstacles and optimize processes so that it sees improved performance or
output. The theory of constraints is apt for manufacturing and supply chain logistics. But,
because it is used to identify and improve methods and systems, it can be applied to any
area of the business. Whatever business processes you have, where you have
bottlenecks, you can use the theory of constraints to find effective solutions to a business
issue. And in any project management situation - whatever its focus - there are all kinds of
activities going on, all of which aim to converge to produce the final result. 
Any bottlenecks in the system will delay or prevent the outcome - and the theory of
constraints can be applied to solve the issues.  The theory of constraints can be a useful
tool to help achieve your organization’s full potential, and prevent blockers in efficiency. 
10. For what types of firms is target costing most appropriate and why?

Target costing is most applicable to companies that compete by continually issuing

a stream of new or upgraded products into the marketplace (such as consumer
goods). For them, target costing is a key survival tool. Conversely, target costing is
less necessary for those companies that have a small number of legacy products
that require minimal updates, and for which long-term profitability is more closely
associated with market penetration and geographical coverage (such as soft
drinks).

The target costing concept has limited application in a services business

where labor comprises the primary cost. Target costing is an excellent tool for planning
a suite of products that have high levels of profitability. This is opposed to the much
more common approach of creating a product that is based on the engineering
department’s view of what the product should be like, and then struggling with costs that
are too high in comparison to the market price

11. For what types of firms is life-cycle costing most appropriate and why?

The life cycle costing is measured as a system which is used within the business to
trace the particular expenses and revenues which are incurred for any cost which has
been incurred. This identification of the cost is generally gathered from its introduction to
the decline stage. It also traces the expenses and revenue which are attributable to
products over the period or stages within the life cycle.

Life cycle costing is more heavily used by businesses that place an emphasis on long-
range planning, so that their multi-year profits are maximized. An organization that does
not pay attention to life cycle costing is more likely to develop goods and acquire assets
for the lowest immediate cost, not paying attention to the heightened servicing costs of
these items later in their useful lives.