Olympus Optical Company, Ltd. (A): Cost Management for Short Life-Cycle Products

Introduction Olympus, which consisted of Olympus Optical Company, Ltd. and its subsidiaries and affiliates, manufactured and sold opto-electronic equipment and other related products. The firms major product lines included cameras, video camcorders, microscopes, endoscopes, and clinical analyzers. Olympus also produced microcassette tape recorders, laser-optical pickup systems, and industrial lenses. Olympus was founded in 1919 as Takachiho Seisakusho, a producer of microscopes. The brand name Olympus was first used in 1921 and became the firms name in 1949. The first Olympus camera was developed in 1936, and by 1990 Olympus was the worlds fourth-largest camera manufacturer. Olympus had six divisions plus a headquarters facility. Four divisions consumer products, scientific equipment, endoscopes, and diagnostics were responsible for generating revenues (Exhibit 1 shows 1995 financial results). The other two divisions were responsible for corporate research and production engineering, respectively. Headquarters was responsible for corporate planning, general affairs, personnel, and accounting and finance. The consumer products division manufactured and sold 35mm cameras, video camcorders, and microcassette tape recorders. In 1995, the division employed 3,900 people (29% of the total Olympus work force) and generated revenues of 73 billion (29% of group revenues). Cameras were by far the firms most important consumer product, accounting for 62.8 billion in revenues. Cameras were sold worldwide, with approximately 70% sold outside of Japan. The consumer products division consisted of six departments: division planning, quality assurance, marketing, product development, production, and overseas manufacturing. Responsibility for the divisions production facilities was centered at the Tatsuno plant, which opened in 1981 and was the firms main camera production facility. Tatsuno was responsible for trial production of experimental products, introductory production of new products, and, to a limited degree, camera and lens production. Five other domestic manufacturing facilities reported to Tatsuno. These facilities were all located in Japan and were responsible

5. Evaluate how the firms target costing system functions. 6. What changes would you make to the firms current target costing system and strategy? 7. How does Olympus target costing system differ from Nissans and Komatsus systems?