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Case Study: Target Costing Ah Limited is a leading Refrigerator Company and sells its products across the World, in the highly competitive sonment the company has been able to maintain its leadership in its Products for 3w year in a row now. Though the Kues have grown year on year, the Costs have increased at a higher rate in the industry as a whole. we Ane been Anders in Revenue. We must lead in cost reduction front as well. I believe we can achieve this with approvements over time, however minor they might bel For this purpose, we should be open for any type of improvement - ght from product design to delivery aspect re modelling"- This is what the CEO of the Company has told its Directors in a et concluded Board Meeting. The Aet Profit Margins of the Company has fallen from 10% in last year to 8% in current year, owing to rise in Raw Material & Koals Cost . Another significant rise in the cost was on account of repairs of products which are under Warranty. There was an increase in these Repair Costs by about 1% of the total Tumover of the Company, A review of Warranty Repairs by the Company Design Team suggested that suitable design changes be brought in to address 90% of the issues that arise during the Warranty period. If these changes are brought in, the Company may be able to avoid substantial replacement / repair costs during the Warranty period. Product Designers have had many discussions in this regard, and have identified certain modifications and changes in components and processes, to address this issue. Required: You are working as a Finance Manager in the Company. The Finance Director has approached you to understand the significance of the CEO's observations and the impact of the Design Team's activities. You are required to submit a report covering the following aspects: Are the terms "Cost Reduction", "Cost Control" and "Cost Management" synonymous ? Can the modifications suggested by the Product Designers be considered as Value Analysis or Value Engineering? What types of issues are covered in a Value Analysis / Engineering Study? 4 Outline the scope of Cost Reduction in Product Design 1. 2 3