Nissan Motor Company Essay examples

1011 Words Mar 12th, 2012 5 Pages
Nissan Motor Company – Target Costing System – Extra Question

1 – What is the purpose of Nissan’s target costing system?
Nissan deployed target costing system to achieve following benefits
Systematic approach: The purpose of the target costing system is to have a systematic procedure to manage costs for new product introductions in order to allow them to earn the necessary profit margin to meet corporate profitability objectives.
Customer Orientation: Target costing promotes customer focused rather than company focused approach. In order to use target costing method, Nissan needs to understand its target market and can select product features to better suit the target audience. By setting a price which customer will pay, Nissan
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Higher cost versus competition may result in loss in market share for Nissan, which may lead it to a downward spiral as the selling price will rise to cover fixed costs due to loss in demand.
Another possible approach is value pricing, where the price is set based on the perceived value provided to the customer. Similarly to target pricing, this approach also starts with looking at the demand side. Target costing can also be supplied with kaizen costing which is used more for improving efficiency in the production phase rather than in the product planning and design phase where target costing is used.
3 – What barriers exist for introducing target costing into western countries?
Activity based costing system is more common in western countries than target based costing. Some of the reasons are:
High cost of implementation: Target costing is an iterative process and therefore requires more time, effort and cost to compute target costs. In western countries where labour costs are high, this time can be used for other priories such as marketing, which will help boast the perceived customer price.
Sharing information: Target costing also requires large amount of confidential information to be shared among employees (various members of value chain) and suppliers to achieve cost reduction. This increase the chance of secure information (features of new

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