Achmad Faizal Azmi (361160)

8-47
a. What is the competitive environment faced by MB as it considers launching the AAV?

The competitive environment was that the company faced difficulty in controlling costs, material
purchasing, and a fast changing market. The needs of the customer were changing and MB was
facing monetary losses. With regards to the AAV market this was targeted at a segment that was
expanding, the sports utility segment. Jeep, Fordand GM dominated this.

b. How has MB reacted to the changing world for luxury automobiles?

To cope with the changing business of luxury automobiles, MB has steamlined core business,
reduced parts and complexity, establish simultaneous engineering programs with suppliers, more
collaboration among departments, emphasize on cost control, and reduce management layers.
MB also has short lead time between the concept and the production. MB also must realize that
the role of engineer as cost planner is important because theyre the one that design the car.

c. Using Coopers cost, quality, and functionality chart, discuss the factors on which MB would
have to compete with other automobile producers, such as Jeep, Ford, and GM.

It is learned that by using Coopers cost, quality, functionality chart, the fact that MB competes
with other automobile producers such as Jeep, Ford, and GM. The factors are:
- priceat mid to upper range of zone;
- qualityat upper range of zone;
- functionalityat upper range of zone.

It is worth mentioning that Mercedes does not produce the most expensive sports utility vehicle.
This distinction is reserved for the Land Rover; however, they strategically placed themselves
toward the luxury end of the spectrum. In one hand, unlike many Japanese examples, Mercedes
does not use target costing as a strict cost control mechanism to produce the lowest priced
product in its class.

d. How does the AAV project link with MBs strategy in terms of market coverage?

To accomplish MBs strategy to cover market segments, MB introduce the C-Class in 1993;
also, known as min-benz because its relatively smaller than other Mercedes-Benzs car, E-
class in 1995; medium-car with big room leg, the new sportster SLK in 1996, and the A-Class
and M Class AAV in 1997. MB would like to expand the market coverage into AAVs market,
which has been mostly covered by Jeep, Wrangler, and GM. MB would like to fulfill the
customers demand by providing what has not yet been provided by MB.
MB produced products that is slightly more expensive than the other on the market, but the
additional cost brings more value to the product. To solve the costing problem, MB should use
target costing.
e. Explain the process of developing an importance index for a function group or component.
How can such an index guide managers in making cost reduction decisions?
 During the concept of development phase, MB used various indexes to help determining
critical performance, design, and cost realtionshops for the AAV. First, ranking the consumer
based on the category such as safety, comfort, economy, and styling. Then, the second step is
measuring the target cost and percentage by function groups. Finally, the target cost index can
be found. Managers used these indexes during the concept design phase to understand the
realtionship of the importance of a function group to target cost. Indexes less than 1 shows the
cost in excess of the perceived value of the function group. Therefore, such index give direction
to managers in making cost reduction decisions since opportunities for cost reduction will be
consistent with the demands and can be measured during the early stages.

f. How does MB approach cost reduction to achieve target costs?

In order to achieve cost reduction, MB can use target costing, to allow MBs engineer to
consider manufacturing cost early in the design decision, and design new products that meet
customers expectations and desired manufacturing cost. To promote target costing, MB must
have good supply chain management, which relies on the quality of the suppliers, and
encourage the suppliers to reduce the cost. MB must have good value engineering process to
examine which components can be reduced.

g. How do suppliers factor into the target costing process? Why are they so critically important
to the success of the MB AAV?

Suppliers played important role in MB since they were actively participated in discussion at an
early stage in the process. The entire cockpit was purchased as a unit from system suppliers.
They were also responsible for meeting the cost target. Without trustful suppliers, MB would
not have sufficient material to produce the product, and therefore MB cannot satisfy customers
demand. Good supply chain management can allow MB to have lower cost for materials
because it could encourage suppliers to be more efficient. Therefore, it is very important for
integrating the system with suppliers in order to get the successful production process.

h. What role does the accounting department play in the target costing process?

The primary function of accounting department in this target costing is as control mechanism
to ensure that the actual cost will not exceed the target cost during the process. Moreover,
accounting department can also help engineer in estimating the cost required. Controlling the
cost is necessary for accountant, and accountant has the responsibility to provide information
that is relevant in promoting target costing.