KAIZEN

COSTING
BY GROUP 1
SECTION B
 FLOW
 Kaizen
 Kaizen Costing
 Important Points
 Steps
 Choice of Perspective
 Customer Value
 Kaizen Costing v/s Standard Costing
 Concerns
 Benefits
 KAIZEN
“improvements in small steps”.
A Japanese term for making
improvements to a process through
small, incremental amounts
rather than through large
innovations.
 KAIZEN COSTING
 Developed by Yashuhiro Monden in Japan.

 Can be translated as “enhancement

estimation”.

 Most consistent with the saying “slow and

steady wins the race”.
KAIZEN COSTING
KAIZEN COSTING
A process of cost reduction during
the manufacturing phase of an
existing product. It refers to
continual and gradual improvement
through small betterment activities,
rather than large or radical
improvement made through
innovation or large investments in
technology.
KAIZEN COSTING

Manufacturing
Cycle
RD&E Cycle

Post Service
Kaizen Costing
Cycle
 IMPORTANT
POINTS
 Kaizen costing’s goal is to ensure that actual
production costs are less than the prior year costs.
 Similar to target costing in its cost-reduction
mission.
 However, it focuses on reducing costs during the
manufacturing stage of the total life cycle of a
product.
 Investment estimates are available in advance.
 It is tied to the profit-planning system.
 IMPORTANT
POINTS
 The time prior to kaizen costing is called
Target costing, which involves searching for a
target cost for a product before it reaches the
market.

 Together these two concepts make up

lifecycle costing.
 IMPORTANT
POINTS
 The target-reduction rate is the ratio of the
target reduction amount to the cost base.
 Cost sustaining period allows employees to
learn new procedures before Kaizen targets
are imposed.
 As much as 80% of lifecycle costs are
determined when production begins.
 STEPS
 When planning, a cost target is set and a gap occurs.
 Establish why the goal was set and what are the
possibilities of reaching the target.
 Cost reductions are broken down into smaller
reductions.
 New cost applies on the day of activity.
 Each activity bears its own investment estimate
prepared in advance.
 Finally resources are allocated.
 CHOICE OF
PERSPECTIVE
 Commonality, i.e., is economies of scale possible?
 Suppliers and their added value?
 Technology, logistics, packaging, investment?
 Can improvements be made in purchasing function?
 What about production, maintenance, planning?
 Can the work be organized differently?
 Do we have the right customers?
CUSTOMER VALUE
 Keep in mind the customer value.
STANDARD COSTING V/S
KAIZEN COSTING
 STANDARD COSTING
V/S KAIZEN COSTING
Standard Costing Kaizen Costing
1. Cost-control system 1. Cost-reduction
concept. system concept.
2. Assumes stability in 2. Assumes
current continuous
manufacturing improvements in
process. manufacturing.
3. Goal is to meet cost 3. Goal is to achieve
performance cost reduction
standards. standards.
 STANDARD COSTING
V/S KAIZEN COSTING
Standard Costing Kaizen Costing
Techniques Techniques
1. Standards are set 1. Cost reduction targets
annually or semi- are set and applied
annually. monthly.
2. Variance analysis 2. Variance analysis
involves comparing involves target Kaizen
actual to standard costs versus actual
costs. cost reduction amounts.
3. Investigation occurs 3. Investigation occurs
when standards are when target reductions
not met. are not attained.
 STANDARD COSTING
V/S KAIZEN COSTING
as the best knowledge to reduce

Standard Costing Kaizen Costing

Managers and Workers are closest
engineers develop to the process and
Standards. thus know best.
 CONCERNS
 Often viewed as reactionary not value adding.
 The system places enormous pressure on employees
to reduce every conceivable cost.
 The product is already in the manufacturing
process, thus it is difficult and costly to make large
changes to reduce costs.
 The cost of disruptions to production may be greater
than the savings.
 BENEFITS
 Competence development is long term.
 Result is ability to survive in short run.
 Every activity is supported by work team that
shares the result.
 Rewards the group working with cost
rationalization.