Continuous Improvement $($Kaizen$)$ Costing

Safety Manufacturing Inc. summarized its manufacturing costs for the prior year based on production of $10,000$ units.

Prior Year

Direct material costs $$250,000$

Direct labor costs $$85,000$

Indirect manufacturing costs $$235,000$

REQUIRED

a$.$ The company is interested in adopting a continuous improvement $($Kaizen$)$ costing approach. At what stage in a product$$s life cycle is continuous improvement costing adopted? How does your answer differ under target costing?

Continuous improvement costing takes place during the Answer

phase, whereas target costing, takes place during the Answer

phase.

b$.$ If the company sets a $4\%$ per unit cost reduction target for all costs, what is the target cost per unit for direct materials, direct labor, and indirect manufacturing costs?

Prior Year per Unit Cost Target per Unit Cost

Direct materials Answer

Answer

Direct labor Answer

Answer

Indirect manufacturing Answer

Answer

c$.$

$1.$ Which one of the following would not help a company meet its target cost goals? Answer

a$.$ Improving internal processes.

b$.$ Redesigning internal processes.

c$.$ Using ABC costing to eliminate non$-$value added activities and reduce costs of activities.

d$.$ Working with vendors to redesign parts in order to decrease process efficiencies.

$2.$ What risks does the company face if the target reduction goals are too aggressive?

The company might Answer

employees if the targets are too aggressive and unattainable. It is always a balance between presenting targets that motivate hard work and pushing those targets too far that employees lose motivation. The company might also risk the employees cutting corners and producing a Answer

quality product. For example, one way to achieve the targets is to Answer

necessary steps, such as quality checks.