Beruflich Dokumente
Kultur Dokumente
KAIZEN COSTING
SUBMITTED TO:
DR. ANSHU AGGARWAL
SUBMITTED BY:
TEJASAV VIJ (143/2018)
VIBHOR AGARWAL (144/2018)
ADITYA VIKRAM SINGH (146/2018)
RIDHIMA SETHI (147/2018)
SWATI AGARWAL (148/2018)
TUSHAR BHATIA (149/2018)
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PREFACE
This Project Report has been prepared in fulfilment of the requirement for the
subject: COST AND MANAGEMENT ACCOUNTING (Trimester-2) in the
academic year 2018-2019.
For preparing the project, we have read many research papers and history of
KAIZEN. The blend of learning and knowledge acquired during the research is
presented in this project report.
The rationale behind the research and preparing the project report is to gauge
the improvement in performance of company by adopting KAIZEN. The project
report starts with the introduction on topic and was focused on TOYOTA
followed by our studies.
ACKNOWLEDGEMENT
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We are grateful to Lal Bahadur Shastri Institute of Management, Delhi for
providing us the opportunity of working on this project. It has enabled us to
gain immense knowledge on how various costing systems are applied in an
organization and leads to growth of an organization and cost reduction.
We would also like to express our sage sense of gratitude and indebtedness to
our “COST AND MANAGEMENT ACCOUNTING” professor “Dr. ANSHU
AGGARWAL” for giving us the opportunity to do this insightful project.
The knowledge and guidance imparted by her made this project a more
organized and learning activity for us. Furthermore, we would also like to
acknowledge with much appreciation to all the author’s who wrote research
paper.
Introduction
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according to the exigencies of each deal. However, product model specific
costing activities carried out in special projects with added emphasis on value
analysis. It is applied to products that are already in production phase. Prior to
kaizen costing, when the products are under development phase, target costing
is applied. After targets have been set, they are continuously updated to display
past improvements, and projected (expected) improvements. Adopting Kaizen
costing requires a change in the method of setting standards. Kaizen costing
focuses on "cost reduction" rather than "cost control".
Objectives
Scope
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Particularly, this standard provides specific guideline who wants to apply kaizen
costing as a method of continuous improvement through waste
management and cost reduction (or control).
This standard is to be followed by all public limited companies where cost audit
is made mandatory through Government’s gazette notification from time to
time.
Key Features
Definitions
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Kaizen Costing: It is a costing technique to reflect continuous efforts to
reduce product costs, improve product quality, and improve the
production process after manufacturing activities have begun. Kaizen
costing involves making continual, incremental improvements to the
production process during the manufacturing phase of the product/service
lifecycle, typically involving setting targets for cost reduction.
Current Cost: Under target costing concepts, this is the cost that would be
applied to a new product design if no additional steps were taken to
reduce costs, such as through value engineering or kaizen costing. Under
traditional costing concepts, this is the cost of manufacturing a product
with work methods, materials, and specifications currently in use.
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Standards
The process of continual cost reduction that occurs after a product design has
been completed and is now in production. Cost reduction techniques can
include working with suppliers to reduce the costs in their processes,
implementing less costly re-designs of the product, or reducing waste
costs.
Once the design has been approved, production can begin, which is where
Kaizen costing starts. The method can be defined as a focus on obtaining small,
incremental cost reductions (rather than big changes at longer intervals) during
the production phase of the product’s life cycle. Kaizen costing is based on the
belief that nothing is ever perfect, so improvements and reductions in the
variable costs are always possible.
Like its big brother Total Quality Management, it becomes part of the culture,
involving all members of the organization. Everyone is encouraged to offer
ideas that, however small, could lead to a reduction in variable costs, which
could in turn lead to a reduction in the selling price and, hopefully, a growth in
sales. Alternatively, the price could be maintained and the resulting increase in
profits could be used to reward the shareholders or be reinvested in other
projects. Its easy to see how Kaizen costing is aligned closely with lean
manufacturing, whose main aim is to cut waste through continuous
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improvement. This is achieved by identifying the best resources and most
efficient processes to remove waste from production.
The major difference between target and kaizen costing is that target costing is
applied during the design stage whereas Kaizen costing is applied during the
manufacturing stage of a product’s life. So, while target costing relates to
planning and Kaizen costing covers manufacturing, total life-cycle costing is
relevant to all stages of a product’s life.
Kaizen cost targets are usually set monthly. However, under standard costing,
standards are usually set before the year to which they relate and do not change
for the whole period, unless a major cost or change in circumstances renders
them obsolete.
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The objective of kaizen costing is to reduce actual costs to manufacture a
product below the standard cost. Standard cost system generally aim to achieve
the cost standards set by management while kaizen costing systems are more
concerned with reducing actual costs below standard costs. The potential cost
reductions are smaller with kaizen costing because the products are already in
the manufacturing stage of their life cycles and a significant portion of costs
will have become locked-in.
So, if the standard cost of a product is set at, say, BDT 10 and its actual cost is
found to be BDT 9, no cost-cutting action is even considered under the standard
costing approach, because there is a favorable variance. But a Kaizen user will
examine ways of cutting this figure to BDT 8.90, BDT 8.80 and so on.
Kaizen costing tracks the cost reduction plans on a monthly basis. Variance
analysis is carried out at the end of each period to compare the target cost
reduction with the actual cost. The kaizen costing targets are expressed in the
physical resources terms. If the head of a group fails to achieve the kaizen
costing target by 1 percent, it should be reviewed by senior.
Kaizen costing has been developed to support the continued cost reduction of
existing components and products. One of the main ways to reduce costs is
through the elimination of the seven main types of waste:
a) Over-production - produce more than customers have ordered.
b) Inventory - holding or purchasing unnecessary inventory.
c) Waiting - production delays/idle time when value is not added to the
product.
d) Defective units - production of a part that is scrapped or requires
rework.
e) Motion - actions of people/equipment that do not add value.
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f) Transportation - poor planning or factory layout results in unnecessary
transportation of materials/work-in-progress.
g) Over-processing - unnecessary steps that do not add value.
Kaizen costing efforts may be directed to any one or both of the following two
approaches to kaizen costing at the discretion of management where
management may confirm reasonable assurance of the success of applying
kaizen costing.
a) Asset specific - all improvement activities are related to reduction of
use of chosen asset or resource
b) Product specific - improvement activities are related to different
resources related to one product
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Organization should have a kaizen costing team consisting of members from
every division who will be involved in planning, monitoring and appraisal
process.
Yes
Production
Phase Start Production
Kaizen Costing
SYSTEM(KAIZEN) ?
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History
The history of Kaizen begins after World War II when Toyota first implemented
quality circles in its production process. This was influenced in part by
American business and quality management teachers who visited the country.
A quality circle is a group of workers performing the same or similar work, who
meet regularly to identify, analyze and solve work-related problems. This
revolutionary concept became very popular in Japan in the 1950s and continues
to exist in the form of Kaizen groups as well as similar worker participation
schemes. The term Kaizen actually became famous around the world through
the works of Masaaki Imai.
In 1986 Masaaki Imai introduced to the western world the Japanese term Kaizen
and made it famous through his book, Kaizen: the key to japan’s Competitive
success. Translated in 14 languages, Kaizen became a fad the world over.
When the Pacific War ended, Japan was in ruins and a super belt-tightening
policy called ‘Dodge’s Line’ was implemented to reconstruct public finance.
Toyota resumed production in 1950 but ran into financial dificulty and could not
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obtain any support from the bank or the steel companies. It was forced to
separate the production and sales areas into different companies, 2000 staff were
laid of , and President Kiichiro Toyoda resigned. is resulted in Toyota’s
philosophy that the company should build up a management culture that would
never have to rely on the support of banks again (business without loans). This
experience became the background to the establishment of the Toyota
Production System(KAIZEN).
Problem description
In 2007, the vehicle sale was 188,000 units and 312 workers were required to
achieve this. E target was set for 212,400 vehicles in 2008, which required 349
installers. E increase in sales volume required directly increasing the production
capacity, facilities and number of installers. However, the increase could not be
met because of the design and setup of the stalls. Table 3 shows PIOC business
plan including required installers and stalls.
Gap analysis
As per 2007 business plan, US$ 4,000,000 was budgeted to establish additional
facilities and recruit about 37 installers to be able to reach the target of 212,400
sales in 2008 using stall-type production.
Kaizen target
The Kaizen target was to implement TPS in order to meet the sales target of
212,400 for 2008 without having to build any additional facilities or recruit
additional manpower. In order to achieve this target, the following objectives
were set:
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Reduce the variance in incentive for installers.
Apply Just In Time principle.
Eliminate Muda causing time lost for installers, arranging tools, vehicles
and collecting parts from the warehouse.
Improve the quality and apply quality control during the process.
Improve the planning for vehicles and parts.
Reduce the number of vehicles damaged by at least 50%.
Savings in Installers
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No. of installers in 2007 312
Forecasted No. of installers in 2008 / Stall-Type 349
Actual No. of installers in 2008 /TPS 275
Difference in No. of installers between 2007 and 2008 74
Monthly average package per installers (US$ 1500) US$ 111,000
Total savings in installers in the year 2008 US$ 1,332,000
Percentage
Comparison Stall-Type 2007 KAIZEN 2008
%
Monthly production
50 vehicle/installer 65 vehicle/installer Increases 13
rate
Monthly space
63 vehicle/stall 71 vehicle/stall Enhances 13
utilization
Q12 2.91 3.11 Increases 65
Required installer Actual installers
Installers Decreases 27
349 275
Car damages 480 115 76
Conclusions
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application of Kaizen and the results achieved reinforces the usefulness of the
Kaizen tools to improve business excellence.
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