FACULTY OF ACCOUNTANCY

SEMINAR IN MANAGEMENT ACCOUNTING

MAF 651
REPORT ON KAIZEN COSTING

PREPARED BY:
NAME MATRIC NUMBER
HAMIZAH AMININ BINTI MOHD SAUPI 2017639264
NUR AININ SOFIA BINTI NURUDIN 2017639262
NURUL RABAITUL NAHIMA BINTI AWANG 2017639256
NURUL AKMA ZULAIKHA BINTI ADZHAR 2017639052
KHAIRUNNISA SYAFIQAH BINTI KHAIRUL SHAHRIN 2017668564

AC220 8H

PREPARED TO:
ASSO. PROF. DR. NORZIATON BINTI ISMAIL KHAN
ACKNOWLEDGEMENT

Assalamualaikum and Good Day. Firstly, we would like to express our gratitude and
appreciation to all those who involved directly or indirectly in completing this report. A special
thanks to our lecturer, Asso. Prof. Dr. Norziation Binti Ismail Khan, who help in stimulating
suggestions and encouragement, and helped us to coordinate in this seminar both in
presentation and writing this report.
I would also like to acknowledge with much appreciation to all the team members for the
endless cooperation and commitment given in completing this seminar report. Not to forget, a
special thanks to our classmates for the attention and endless support given. With the
guidance and encouragement from all parties, we are able to complete this seminar report
within the given time.
 TABLE OF CONTENT

No. Content Page

1.0 Definition of Kaizen

1.1 History of Kaizen

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1.2 Definition of Kaizen Costing

2.0 Objectives of Kaizen Costing 2

3.0 Types of Kaizen Costing

2
4.0 Methods of Kaizen Costing 3

5.0 Costs under consideration Kaizen Costing 3

6.0 Types of Waste in Kaizen Costing 4

7.0 MUDA
7.1 Definition of Muda
5
7.2 Types of Muda

8.0 Implementation of Kaizen Costing 5-6

9.0 Challenges in Implementing of Kaizen Costing 6

10.0 Benefits in Implementing of Kaizen Costing 7

11.0 Conclusion 7

12.0 References 8
1.0 DEFINITION OF KAIZEN

The word “kaizen” is adopted where “kai” means change while “zen” means good, it is simply
mean “change for better”. In English, kaizen is typically applied to measures for implementing
continuous improvement. Kaizen is an approach to activity organisation based on common
sense, self-discipline, order and economy. Kaizen method is a strong contributor and
fundamental part of a lean production process model in lean manufacturing. It is also
applicable to lean software development and personal endeavours.

On the other hand, Kaizen refers to any activities that continually improve all business
functions or processes that involves every employee from the CEO to the assembly line
workers. The word “kaizen” in every business industry is the common practice in Japan. It also
applies to processes, such as purchasing and logistic, that cross organizational boundaries
into the supply chain.

1.1 THE HISTORY OF KAIZEN

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, analyse 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.

Masaaki Imai is a Japanese organizational theorist and a management consultant, known for
his work on quality management, specifically on Kaizen. In 1985 he founded the Kaizen
Institute Consulting Group (KICG) to help western companies introduce the concepts, systems
and tools of Kaizen. Masaaki Imai published two fundamental books on business process
management “Kaizen: Japanese spirit of improvement” (1985), which helped popularize the
Kaizen concept in the West, and Gemba Kaizen: A Common sense, Low-Cost Approach to
Management (1997).

1.2 DEFINITION OF KAIZEN COSTING

Basically, Kaizen costing is a cost reduction system. The founder, Yasuhiro Monden defines
kaizen costing as the maintenance of present cost levels for products currently being
manufactured via systematic efforts to achieve the desired cost level. The word kaizen is a
Japanese word meaning continuous improvement. Kaizen costing 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".

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2.0 OBJECTIVES OF KAIZEN COSTING

The objective of kaizen costing is to reduce actual costs to manufacture a product below
the standard cost. Standard cost system generally aims 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.

Kaizen Costing is an ongoing process that strives to reduce costs by making

improvements and removing waste. Successful continuous improvement requires full
commitment from senior managers, along with effective, well-documented policies and
procedures designed to log, examine and develop all new ideas

Some of the key objectives of the kaizen philosophy include quality control, just-in-time
delivery, standardized work, the use of efficient equipment, and the elimination of waste.
The overall goal of kaizen is to make small changes over a period of time to create
improvements within a company.

3.0 TYPES OF KAIZEN COSTING

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. There are two types of
Kaizen costing which are asset specific and product specific. Asset specific means all
improvement activities are related to reduction of use of chosen asset of resources. Asset
and organisation specific kaizen costing activities planned according to the exigencies of
each deal. It also involves on how organisation choose their chosen asset to be reduce
wisely without having trouble or incurred more cost. This improvement activity has
something to do with their asset and it must be their main resources. The improvement will
be focus on asset and become success if they can make reduction based on their asset
without having lead time. Furthermore, their focuses on the need for a particular deal or
the business unit.

Next, the other type is product specific which means that all improvement activities are
related to different resources related to one product. For instance, the reduction of used
of the resources such as the human skills itself and machinery. Human skills itself has
different skill and come from variety background resources. This will help improvement
activities which focus reduction different resources related on one product become more
successful, but its more on product not asset. Kaizen costing can also be apply on product
not just asset, if there are different machinery and that can become different resource
which related to one product, that can also be reduction so that there is a little amount left
for unnecessary resources, improvement activity will be totally focus for just that product.
It is also focus minimize unnecessary resources for specific product in optimizing quality,
lead time and productivity. In addition, aiming at value analysis is termed as product-
specific kaizen costing.

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4.0 5’s METHODS OF KAIZEN COSTING

5’s methods of Kaizen Costing are Seiri, Seiton, Seiso, Seiketsu and Shitsuke. The first
step in the 5S approach is called Seiri which means sort. Sorting means to identify and
categorized the cost based on their necessity. The unnecessary cost should be moved out
of the organization to ensure the work done smoothly. The next step is Seiton which means
straighten. In this stage, the product to be improved has been identify thus, those
unnecessary cost will be differentiate. By right, the organization now can focus on the
essential cost to have further steps in producing the product. This step helps in improving
the visibility, availability and accessibility of all the tools and items.

The third step is Seiso. Seiso means shine where it refers to maintaining the cleanliness
in the workplace to create a positive work environment. By adopting shine in the production
or management of an organization, it helps the production to run smoothly as planned. To
move on, the next step is Seiketsu which means standardize. Standardize means when
we have identified all the necessary cost needed, the organization must establish a
standard that can be used as a guideline. Work practices should be consistent and
standardized. Work stations for a particular job should be identical. All employees doing
the same job should be able to work in any station with the same tools that are in the same
location in every station. Everyone should know exactly their responsibilities. Last but not
least, Shitsuke or known as sustain. This final step made is to communicate and educate
the employees about the changes made. Thus, developing a sense of self-control and
discipline among them to maintain and follow the set standards.

5.0 THE COSTS UNDER CONSIDERATION OF KAIZEN COSTING

As referring to the objectives of implementing Kaizen costing, it states that Kaizen costing
is an ongoing process that strives to reduce costs by making improvements and removing
waste. By referring to the objective, there are a few costs that should be taken as a
consideration which are the cost of disposal of waste and product, cost supply chain and
recruitment cost.

To begin with, the cost of disposal of waste and product means that any waste of product
which is not needed in processing a product, will be re-used for something useful. This will
improve the efficiency of the production and helps in reducing the manufacturing of faulty
products. Thus, there will be no wastage.

Besides, the cost of supply chain regulates all the cost incurred in the production of goods
or services, including the cost of machinery, tools, labor, raw material and other
equipment. This means that all the cost incurred in the whole production of a product will
be assess and control to ensure that all the costs are not exceeding the budgeted cost.

Meanwhile, for the recruitment cost, it functions to manage the cost of hiring skilled
employees, their training and development and retention. This means that the organization
will measure the appropriate cost for every employee. The objective of taking this cost as
a consideration is to avoid from any excess payment to employed employees with
moderate skills and recruiting new unskilled employee as the main objective is to minimize
the cost.

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6.0 TYPES OF WASTE

Waste can be defined as any production activity that utilizes resources but does not add
any value for the customer. Since these wastes add to the cost of products, they either
reduce the profit the manufacturer makes or inflate the price that the customer needs to
pay. In general, customers are not willing to pay for these activities because they do not
benefit from them. Therefore, eliminating waste presents a great opportunity for
businesses to cut costs and improve efficiency. There are seven types of waste which will
be discussed.

First is overproduction. Overproduction occurs when items are manufactured before they
are required. This can be seen where an organization produced products earlier than it is
demanded by the customers. By doing this, it will contribute to the probability that the
products are not fully sold because of the production is exceeding the demand. Next is
over processing where it occurs when more work is put into a product or service than is
actually required. This happens when extra work or effort is put on a product which is not
necessarily done. For instance, in the process of baking, an employee tried to use another
way of decorating the cake rather than the usual way. The result is the same but by using
the alternative way, it requires more time than usual. Hence, it is called as over processing
as it requires more work and time to produce the same result.

Besides, another type of waste is inventory wastage. Inventory is an important to the

organization in order to ensure that the stocks is always sufficient when demanded by the
customers so that there will be no shortage of stocks. But, excess stocks can lead to
increases of costs and take a valuable space to store the stocks. The space used can be
occupied with other things that is more beneficial. In order to reduce this waste, the
organization can adopt Just in Time (JIT) method by only producing the products when it
is needed.

To move with, the other waste is involving transportation cost. This is because, when an
organization hold too many stocks, it will need a transport or the force of lifting and moving
the products from a place to another. This indirectly will contribute to higher cost that will
be bear by the company. Next is motion. Motion is typical movement of a person a machine
that is required to complete a work.

On the other hand, waiting is one of the wastage that might be occurred when work or
projects come to a halt or slow because machines have yet to finish producing the required
goods, products have not arrived, or some other task is holding up the rest of the project.
Lastly, the wastage on defects. Defects occur on errors and rework are created because
of the process. When there are defects, it requires some time and work force to fix it. That
is why, defect is one of the types of wastage that a company should avoid. Hence, by
understanding all the types of wastage, an organization should always identify the wastage
that occurs in the company and try to eliminate as they can.

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7.0 MUDA
7.1 DEFINITION OF MUDA
Muda is a Japanese word with the meaning of futility, uselessness and wastefulness.
MUDA is a key concept in lean process thinking, like the Toyota Production System (TPS)
as one of the three types of deviation from optimal allocation of resources. The other two
are mura that means unevenness and muri refer to overburden.

7.2 TYPES OF MUDA

There are two types of MUDA which the first one is called as Type 1 and Type 2. As for
Type 1, it is non value-adding waste but it is necessary for end customers. This is where
from a business perspective we do it to meet the regulations. It is hard to eliminate because
while it is non value-added items, but it may still become a necessary thing.
On the other hand, Type 2 is a non-value added items and it is unnecessary for end
customers. By occurring these, it will contribute to the existing of hidden costs and it should
be eliminated so that there will be no waste.

8.0 IMPLEMENTATION OF KAIZEN COSTING IN INDUSTRY

As implementing Kaizen costing is a practical approach to solve cost-related problems to

improve the overall efficiency of the organization, there are some companies who applied
this approach. In the bigger capture in industry, we can see Nestle and Toyota as
examples of companies that implement Kaizen costing in their business.

First, Nestlé which is founded by Henri Nestlé is one of the most renowned foods and
beverages company producing a wide range of products including baby food, dairy
products, medical food, tea and coffee, snacks, confectionery, ice-creams, mineral water
and many more. The company used the kaizen costing technique for attaining lean
production, and the approach was stated as Nestlé Continuous Excellence (NCE).

In this process, Nestlé addressed its problem of wastage and time consumed in the
production to improve the efficiency of the company. Less wastage means incurring a low
cost, better profit margin, high output and proper utilization of resources. Nestlé was able
to reduce wastage in the production of FMCG and also successfully decreased the time
consumed in the manufacturing of the products.

Moving to Toyota, it makes its goals and objectives into a “what we must do” instead of
“what we could do”. In order to implement this philosophy requires a serious commitment
of employees with the company and discipline that involves all members, both senior
officers, as middle and low position. It also involves all areas of the company.

At Toyota, the Kaizen methodology is applied based on three principles keys: the five “s”,
five whys and the Thinking People System (TPS). The Toyota Production System invites
team members to think about the process and make timely decisions in order to keep it
running smoothly, rather than merely operating like machines. This involvement creates
responsibility for the success of the process, increasing both morale and quality. This is
also essential for the success of kaizen.

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 The Kaizen continuous improvement philosophy depends not only on experts or leaders
but involves everyone in the company. Therefore, Toyota believes that everyone can
contribute their knowledge and skills. By TPS, it becomes possible for everyone to do their
part and be able to devise other solutions. That´s why Toyota makes a reunion all mornings
to be aware of what people needs and suggest. Another initiative proposed by this system
is that it invites to be aware of the importance of the activities that each one performs in
the company and to think about the reason for the procedure that is done. In addition, the
TPS makes Toyota staff feels valued and heard.

9.0 CHALLENGES IN IMPLEMENTING KAIZEN COSTING

Despite the many benefits of kaizen, there are some limitations business managers need
to be aware of before deciding to implement it. This is because implementing kaizen is like
altering current management systems. As soon as kaizen is implemented in an
organisation, it is very difficult to return to old management systems.
The first limitation is lack of proper procedure to implement which will make the company
not able to see the flow of achievement and get the result that they are looking for.
Therefore, it will cause them to believe that kaizen costing does not give benefit to them
as well as not one of the best practices. Next, too much suggestion lead to confusion and
time wastage. This is because it involves infrequent more tricks to cut cost and managers
need to micro manage the process which may lead to communication barrier between the
managers and employees as a result, they will have all the opinion to make the
improvement. This leads to confusion and it takes time for an employee to understand a
new system implement.
To add on, Kaizen costing is difficult to implement in large scale of process whereby,
change is difficult because people are always reluctant to change. Therefore, they have to
put up with a certain resistance in businesses. Employees might not be ready to accept a
different system from what they have been used to. Lastly, it is difficult to implement Kaizen
Costing in existing systems. As kaizen is implemented in an organization, it is very difficult
to go back to old management systems. Hence, Kaizen costing might be easier to
implement in businesses without already established management systems.

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10.0 BENEFITS OF IMPLEMENTING KAIZEN COSTING

Kaizen as a method of improvement is not only beneficial to the business. It is also

beneficial to employees, customers and the organization as a whole. This management
theory is applicable to most types of businesses. Kaizen recognizes and rewards the
efforts of employees. By doing so, it gives them a sense of worth in the organization. To
list out, there are a few benefits that have been identified. First is process centred. Process
centred is able to identify exactly where things are going wrong and change the processes
so that mistakes do not occur. Thus, wasteful processes can be reduced. Next, in the
frame of benefiting the employees, it helps in forming work teams. This shows that every
employee involved in the implementation of the kaizen practice needs to perform in a work
team with a common aim of improvement. (Priya, 2019)
On the other hand, Kaizen costing helps the company to reduce waste which result in
reducing costs. Kaizen costing reduces wastes in business processes. The management
and staff are responsible for identifying areas that constitute waste in the business
process. Other than that, it also benefiting the company since this approach will improve
their communication in the teamwork. This is because, everyone in the team will involve
in the business process. Therefore, the team will communicate well in order to solves the
problems together, develop a bond and build team spirit. Hence, the employees are able
to work with a fresh perspective, an unbiased mind and without prejudice. Last but not
least, not only benefiting on the teamwork, it also will improve employee satisfaction. This
is shown where the improvements in Kaizen costing will boost the quality of services.
Therefore, it helps businesses to implementing a new process improvement, boost
efficiency and enhance time management.

11.0 CONCLUSION
To sum up, after studying and presenting this topic, what we can conclude as a whole is
Kaizen is simply means change for better to measure for implementing continuous
improvement. As in Kaizen Costing, it is defined as the maintenance of present cost levels
for products currently being manufactured via systematic efforts to achieve the desired
cost level which applied to products that are already in production phase.
The main objectives of implementing Kaizen Costing in an organization is to reduce the
actual cost of production so that the cost can be below than the standard cost. Besides,
it aimed to improve productivity, reduce waste and eliminate non-value-added activity in
production. Other than that, we also understand that there are two types of Kaizen Costing
which are asset specific and product specific. To add on, there are five methods in
implementing Kaizen Costing that is known as “5s Method” which must be carried out to
ensure the effectiveness of implementing it.
Despite the fact that it is beneficial to a business, it is also beneficial to employees and
customers as well. In conclusion, to adopt Kaizen Costing in an organization, the
organization must understand well its principle and the methods to ensure that the
organization can achieve its objective which fits the Kaizen costing definition. However, it
is important for business managers to understand kaizen advantages and disadvantages
before choosing to implement it so that they can aware with any difficulties occurs when
adopting Kaizen Costing.

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12.0 REFERENCES
Website
Marshall, H. (2019,July 8). What is Kaizen, Understanding of Kaizen and Requirement of
Kaizen. Retrieved from
https://www.investopedia.com/terms/k/kaizen.asp

Priya, C. (2019, May 10). Types of Kaizen Costing. Retrieved from

https://theinvestorsbook.com/kaizen-costing.html

Hitesh, B. (2017, December 17). 7 Steps to Implement Kaizen in your Organization

Retrieved from https://www.marketing91.com/implement-kaizen/

Drmahey. (2019, January 3). Kaizen Advantages and Disadvantages. Retrieved from
https://draminu.com/kaizen-advantages-and-disadvantages/

Erica, R. ( 2018, November 7). HOW TO OVERCOME THE BIGGEST OBSTACLES TO

KAIZEN IMPLEMENTATION Retrieved from https://prodsmart.com/blog/2018/11/07/how-to-
overcome-the-biggest-obstacles-to-kaizen-implementation/