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Rishi Kalantri Sahil Khurana Sharad Rastogi Sidharth Sehgal Udit Bubna Vaibhav Aggarwal
Rishi Kalantri Sahil Khurana Sharad Rastogi Sidharth Sehgal Udit Bubna Vaibhav Aggarwal
Contents
EXECUTIVE SUMMARY .................................................................................................................................................. 6 TARGET COSTING............................................................................................................................................................. 7 TATA NANO THE INTRODUCTION ........................................................................................................................ 9 A BREAK THROUGH CAR............................................................................................................................................ 11 COST CUTTING FEATURES ................................................................................................................................... 12 TARGET PRICING THE NANO ................................................................................................................................... 13 Product Features....................................................................................................................................................... 13 Dimension .................................................................................................................................................................... 13 Engine specifications for Tata Nano ................................................................................................................. 14 Safety features for Tata Nano The 1 Lakh car ........................................................................................... 14 How green is Tata Nano? ....................................................................................................................................... 14 IDEA GENERATION OF NANO ............................................................................................................................. 14 THE COST THE TARGET ........................................................................................................................................ 16 THE COST REDUCTION PARADIGM....................................................................................................................... 17 Value Engineering Alternatives: ......................................................................................................................... 17 Now the question was, how much to produce .......................................................................................... 17 PRODUCT DEVELOPMENT ................................................................................................................................... 18 The Final verdict: THE CAR COST IS Rs 1 lac .................................................................................. 18 ENGINEERING IT ........................................................................................................................................................... 19 Costs, outsourcing and beyond ........................................................................................................................... 20 Cost Price Structure ................................................................................................................................................. 21 Safety Issues................................................................................................................................................................ 22 STEPS TO ESTABLISH TARGET COST ................................................................................................................... 23 1. 2. 3. 4. 5. 6. 7. 8. 9. Re-orient culture and attitudes. ........................................................................................... 23 Establish a market-driven target price.................................................................................. 23 Determine the target cost..................................................................................................... 23 Balance target cost with requirements. ............................................................................... 23 Establish a target costing process and a team-based organization. ..................................... 23 Brainstorm and analyze alternatives. ................................................................................... 23 Establish product cost models to support decision-making. ................................................ 23 Use tools to reduce costs. ..................................................................................................... 24 Reduce indirect cost application. .......................................................................................... 24
10.
CHALLENGES FACED DURING THE DEVELOPMENT OF TATA NANO.................................................... 24 Question of Safety ..................................................................................................................................................... 25 Mass Motorization .................................................................................................................................................... 25 Used car market effects .......................................................................................................................................... 25 Cases of Fire ................................................................................................................................................................ 26 Competitors................................................................................................................................................................. 26 APPENDIX ......................................................................................................................................................................... 27 Target Costing Pressures on New Products .................................................................................................. 27 CONCLUSION ................................................................................................................................................................... 27 SPECIFICATIONS ....................................................................................................................................................... 28 Outsourced Parts Supplier Information .......................................................................................................... 29 COMPARISON ............................................................................................................................................................. 31 TATA NANO PRICES ON THE TATA MOTORSS WEBSITE ...................................................................... 31 TATA NANO OFFICIAL FINANCERS AT LAUNCH ........................................................................................ 32 THE APPLICATION FORM ..................................................................................................................................... 34 THE ACCESSORIES PRICE LIST ........................................................................................................................... 35 GLOSSARY......................................................................................................................................................................... 36 REFRENCES...................................................................................................................................................................... 39
EXECUTIVE SUMMARY
This report explains the concept of target costing through the case of Tata Nano. Target costing is the process of determining the maximum allowable cost for a new product and then developing a prototype that can be profitably made for that maximum target cost figure. A number of companies--primarily in Japan--use target costing, including Compaq, Ford, Isuzu Motors, ITT, NEC, and Toyota etc. The target costing for a product is calculated by starting with the product's anticipated selling price and then deducting the desired profit. Following formula or equation further explains this concept: [Target Cost = Anticipated selling price Desired profit] The product development team is then given the responsibility of designing the product so that it can be made for no more than the target cost. In case of Tata nano the company decided on manufacturing a car that would be affordable for the lower segment class of the Indian population. It basically aimed at families with two wheelers and thus came down to engineering a car that would be sold for just a lakh. Then the target cost was exacted to about Rs 65000 per unit. A number of steps were taken to ensure that the cost remains within the target decided such as one windscreen wiper instead of the usual pair, No power steering, unnecessary due to its light weight, three lug nuts on the wheels instead of the usual four, Only one wing mirror, No radio or CD player, No air conditioning etc.
TARGET COSTING
Target costing is defined as a cost management tool for reducing the overall cost of a product over its product life cycle. Management utilizes this pricing technique to meet both the demands of its customers as well as company profit goals. Target costing is particularly popular among Japanese firms such as Toyota, Nissan, Toshiba and Daihatsu Motor in various industries such as automobile manufacturing, electronics, machine tooling, and precision machine manufacturing. As Japanese tastes became more diverse, assembly-oriented production grew in popularity. This growing demand for a diverse range of products shortened product life cycles. With shorter product life cycles more focus is placed on the costs occurring at each phase (development, planning and design.) Compared to traditional standard costing approaches in which an estimate of product, general administrative, marketing, and distribution costs is taken into consideration, target costing takes on a more proactive approach to pricing. Traditional costing determines cost based on the design of goods, adds a markup and establishes a price. In comparison, the marketplace directs target costing by first setting a selling price, then subtracting target income and finally reaching a cost. Traditionally, a cost figure is obtained, implemented and once found to be poorly configured, sent back to management and engineers for reworking of production processes and cutting of costs. In comparison, target costing utilizes costing information and focuses on the best possible price up front, preventing wasted time on after-the-fact discussions concerning design and re-engineering of the product. The decision making process involves a cross functional team, in which employees from various departments (Production, Engineering, R&D, Marketing, and Accounting) are given the responsibility of determining an acceptable market price and corresponding Return on Sales, as well as a feasible cost in which a given item may be produced. In order to minimize costs, team members focus on eliminating non-value-added costs of the process, improving product design and modifying process methods. Target costing, in particular, emphasizes the reduction of costs during the planning and design stage of the product life cycle since the majority of product cost is determined at this stage. In comparison to traditional product costing methods, target costing allocates more of the total cost to the development stage, simultaneously reducing costs during the production stage. A number of cost-engineering techniques are used in the cost reduction process. Just-in-Time, Total Quality Control, Material Requirements Planning and Value Engineering are among such methods promoted by target costing. With the increased popularity of assembly-oriented industries, Economic Order Quantity analysis, a traditional means of keeping certain amounts of inventory on hand, became less useful. Instead, many firms, realizing the dangers of housing high inventory, turned to Just-InTime and Material Requirements Planning. JIT and MRP provided a great advantage to these companies that manufacture high variety, low-volume products.
Value engineering involves the design of a product after gathering input from employees and from various departments within a company, each offering a different perspective on possible cost minimization tactics. Value engineering considers all aspects of the value chain and frequently involves individuals outside of the company such as suppliers in order to reach a decision that encompasses the most successful combination of price and quality. Total Quality Control is a Japanese process that initially developed in the United States as a method of Quality Control. Inspection is the main issue that distinguishes between the two. TQC incorporates QC (inspection) activities throughout a company, rather than in isolation within specific departments. Initially a project is either accepted or rejected based on marketability and cost and profit data. Once a project is accepted, the engineering department constructs an engineering development plan. This plan considers all aspects of product cost up-front. Target profit is then subtracted from expected sales to reach an estimate of allowable cost. In order to successfully reach this allowable cost, a great deal of effort is required from each department to tighten overall cost. Individual processes are evaluated in order to direct efforts toward the most valuable and feasible cost saving areas. The prevalence of assembly-oriented products along with shortened product life cycles has contributed to the success of target costing. Many firms have turned to target costing as a way of improving the price and quality of their products, creating a benefit in terms of a companys profits as well as increased customer satisfaction. Target costing adds value to the production process by eliminating non-value added activities, thus paving the way for decreased costs passed on to the consumer. Target costing enables companies to ascertain a more realistic price as well as strengthen competition among firms to offer quality products at lower costs.
That's hardly surprising. At Rs 1-lakh, the Nano is the world's cheapest car and holds out the same promise as Ford's Model-T did when it was launched in 1908 at a price of $825, and which is to make motoring affordable to millions of Indians when it hits the road in September or October this year. Even its 'deluxe' model, featuring air-conditioning and power windows, won't cost more than Rs 1.2 lakh on road-a good Rs 80, 000 cheaper than the cheapest car currently in the country, the Maruti 800.
PRODUCT FEATURES
Length:- 3.1 mtr Wide:- 1.5 mtr Height:- 1.6 mtr Weight:- 600 Kg Mileage:- 20 Kmpl Fuel tank:- 15 Ltr Engine:- 624 cc Top speed:- 95-100 Kph Ground clearance:-180 mm Gear box:- 4-speed Speed of Tata Nano: Top speed 105kmph
DIMENSION
Length: 3.1m Height: 1.6 m Width: 1.5 m
managing director, again turned to Wagh. Wagh remembers what he learned marketing the little truck. "People want to move from two-wheelers to four-wheelers," he says. "Today they can't afford it." More and more can, but Indian car buyers today represent a tiny slice of a potentially giant market India has just seven cars per 1,000 people. India's auto industry has grown an average of12% for the past decade, but just 1.3 million passenger vehicles were sold in India in the fiscal year ending March 2006. That means a billion Indians buy about the same number of cars in a year as 300 million Americans buy in a month.
PRODUCT DEVELOPMENT
And finally the product was developed with the following features. Engine Capacity Bosch 624 c.c. twin cylinder Low capacity, Lighter, sufficient with better Power, Rear Engine: To reduce the transmission length using a balancer shaft. 4 Speed Manual Gear Box All Aluminum Engine Higher thermal conductivity than cast iron, Lighter and so better mileage Engine Management System by Bosch Superb emission control & smooth acceleration. Dimensions L: 3.1m, W: 1.5m, H: 1.6m Less length but more inner cabin space due to height. Comfortable leg room. Independent Front & Rear Suspension McPherson Strut in Front & Coil spring & trailing arm in rear. Better ride than Maruti 800. Single piece ribbed steel body with safety features such as crumple zones, intrusion resistant doors, seat belts, strong seats & anchorages. Safety requirements are adequately met. Single wiper in place of two Cost effective yet functionality is met Tube less Tires Weight reduced by 2 Kg. Cost reductions 200 Rs. And in line with modern vehicles Instrument console in the centre Elegant to look at and can be used both in Left Hand & Right hand version.
ENGINEERING IT
According to Wagh, the prototypes were put in place with that design. Again, it was not as if the job was done. Tata Group and Tata Motors Chairman, Ratan Tata, felt that a slight change in the front part of the car was required. "Finally, we ended up increasing the length of the car by 100 mm," says Wagh. It is not as if there is no room for further change in styling or design. By Wagh's own admission, there will not be any change in the Nano's exterior although there could be a few changes in the interior of the car. While the bit about design and styling took a while, the decision with respect to having a rear engine was less complicated. "We had decided on a rear engine four years ago. This was with the objective of getting the best, optimal layout," states the Jai Bolar, Senior Manager (Development), ERC. If there was one thing from which the focus could not be taken away, it was obviously cost. That was often easier said than done, since the rising input costs were beyond the company's control. "Rising input costs made our engineering targets difficult. For example, if steel prices went up, we had no choice but to reduce the amount of steel in the car," says Wagh. Again, it was important to look beyond costs as well. "The price of the car is what the customer pays in the beginning. Later on, what matters is the performance of the car," he adds. Ideas for the Nano came from unexpected quarters and they were looked at closely before a decision was taken. For instance, in addition to the vendors, a small group of mechanics was part of the development phase. This was really a part of the serviceability and accessibility workshop. Wagh recalls that one of the suggestions was to have an additional opening on the rear floor which would provide access to the intake manifold and starter. "We were trying to avoid this for cost reasons but the mechanics were vehement," he says. The importance of balancing design changes with their respective cost implications cannot be overstated. Every design, therefore, had to cater to three key requirements-cost, regulatory requirements and acceptable performance standards. As Wagh puts it, "We did not want to make something that was an embarrassment of a car." Clearly, while the cost was hugely critical, the company was unwilling to make any kind of compromise on other areas. Fuel economy, according to Narendra Kumar Jain, Deputy General Manager (Engines), ERC, is a major driver for selling a vehicle in India. "It was important, for instance, to ensure that the car could be manoeuvred in the city. If your car requires less parking, then the material required is also less," he adds. Of course, there was the advantage of having learnt from the Indica and the Ace. Wagh, whose father was on the Indica R&D team, was very closely involved with the design of the Ace as well. "Clearly, the Nano was a tougher cost target. In a commercial vehicle, endurance is of prime importance. It is also important in the case of a car, but sometimes other aspects like touch and feel are more critical," he explains. Possibly, the biggest plus point through the launch of the Indica and the Ace is that the development process at Tata Motors has matured to a great extent.
Tata Motors, for its part, looked at various ways to cut costs across the spectrum. "For instance, a normal wheel mounting has four pins while we have three. We have also reduced the thickness of the bumpers," explains Wagh. That is, of course, apart from the fact that the car has only one wiper instead of the more conventional two. Electronic sourcing has been another effort to cut costs. Wagh goes back to a time when Tata Motors was recovering from huge losses - that was in 2001 - when the company took a lot of initiatives to cut costs. "One of the ways we decided to do it was through e-sourcing. It was used extensively for the Ace and now for the Nano. It provides good benefits as long as product specifications are firm," he adds. By Wagh's estimate, there has been a saving of around 10 per cent as far as the Indica and the Ace are concerned. The actual numbers for the Nano are still being worked out. As things stand, the standard version of the car - what is being referred to, as the Rs 1 lakh car in that sense - will not have an air-conditioner or power windows or a central locking system. That apart, it will not have body-coloured bumpers or fabric-trimmed seats. All these features are expected to be a part of the deluxe model. According to Wagh, in any automotive development program, the cost reduction continues not till just the time the car is launched but much beyond that. "Initially, we were looking at cost prevention, which involved selecting a design concept with the least cost. Today, it is a clear cost-reduction effort," he says.
A recent press report says that it has been claimed that the amount of subsidy works out to Rs 60,000 per car, which is as high as 60% of its retail selling price. In fact the cost equation is so thinly balanced, even after grant of the above subsidies, that Tata Motors management rejected a proposal to shift the vendor site location from the plant site to just across the road on the ground that the additional costs will make the project unviable. It has never been wise to depend for business viability solely on government grants and subsidies and short term tax incentives. Nano however is trying to go against this basic business philosophy.
SAFETY ISSUES
As there has been concern generally on the issue of safety, the small car team outlines the fact that the Nano caters to safety norms at two levels. "The Nano meets all regulations in the Indian market. The package protected car also meets all future regulations in Europe as well, which includes offset frontal and side impact," says Wagh. Environment has been another controversial area, though the company points out that all norms have been met. "Currently, the car meets Bharat III norms, which are applicable in 11 cities while it meets the Bharat Stage II norms in the rest of the country. We will meet the Bharat Stage IV and Euro IV requirements as well," says R. G. Rajhans, Project Manager (Body Systems), Tata Technologies. For now, the focus is on getting the car on the road, which Wagh thinks should be possible during the second half of 2008-09 financial year, that is after September. It is expected that the plant in Singur will produce around 1,000 cars per day. There are a couple of other things too that are being looked at. "There are alternate fuel technologies under development such as CNG and LPG", he says and he even hints that a future model "could have a diesel engine". If that is not enough, Wagh is also working on technologies that Ratan Tata mentioned in an interview to this publication that the car "in the future might well have continuously variable or automatic transmission." Wagh adds that the roadmap will be to have a second generation of the vehicle in the next 5-7 years. A promise is a promise, said Rattan Tata, Chairman, Tata Motors, on 10th January, 2008,when the Nano was first displayed at the Auto Show in Delhi. The Nano project didnt grabthe attention of only Indians; the entire world had their eyes glued to the worlds cheapest car. A truly Peoples Car, this time is from India. Though the dealer price is Rs. 1 lakh, the price on road, when it will be launched, will reach around Rs. 1,25,00 but it will be still more affordable and will be more eco-friendly than most other cars giving a mileage of around23km/liters. The price of the car is such that a lot of rich and HNIs, if interested, can buy the car just by a single swipe of their credit cards. Providing a car worth rupees one lakh car was the dream of the chairman of Tata motors Mr. Rattan Tata. And with high qualified IT skills people he has shown the Indian talents to the whole world. SOME BASIC FACTS Cost of development - 1700 crores Manufacturing cost(excluding dealer margin and taxes)- Rs 65,000 per unit Development of Design - India Time for designing the car - 4 years Team -A team of 150 engineers , everyone below age 28 Biggest hurdle - To make a car cheap without compromising design
product and process become more defined, these models are based on industrial engineering or bottom-up estimating techniques. The models need to be comprehensive to address all of the proposed materials, fabrication processes, and assembly process and need to be validated to insure reasonable accuracy. A target cost worksheet can be used to capture the various elements of product cost, compare alternatives, as well as track changing estimates against target cost over the development cycle. 8. USE TOOLS TO REDUCE COSTS. Use of tools and methodologies related to design for manufacturability and assembly, design for inspection and test, modularity and part standardization, and value analysis or function analysis. These methodologies will consist of guidelines, databases, training, procedures, and supporting analytic tools. 9. REDUCE INDIRECT COST APPLICATION. Since a significant portion of a product's costs (typically 30-50%) are indirect, these costs must also be addressed. The enterprise must examine these costs, re-engineer indirect business processes, and minimize non-valueadded costs. But in addition to these steps, development personnel generally lack an understanding of the relationship of these costs to the product and process design decisions that they make. Use of activity-based costing and an understanding of the organization's cost drivers can provide a basis for understanding how design decisions impact indirect costs and, as a result, allow their avoidance. 10. MEASURE RESULTS AND MAINTAIN MANAGEMENT FOCUS. Current estimated costs need to be tracked against target cost throughout development and the rate of closure monitored. Management needs to focus attention of target cost achievement during design reviews and phase-gate reviews to communicate the importance of target costing to the organization
QUESTION OF SAFETY
The Nano has an all sheet-metal body made from Japanese and Korean steel, with safety features such as crumple zones, intrusion-resistant doors, seat-belts, strong seats and anchorages, and the rear tailgate glass bonded to the body. Tires are tubeless.
MASS MOTORIZATION
As the Nano was conceived and designed around introducing the automobile to a sector of the population who are currently using eco-friendly bicycles and motorcycles, environmentalists are concerned that its extraordinarily low price might lead to mass motorization in countries like India and therefore possibly aggravate pollution as well as increase the demand for oil. The ecology focused German newspaper die tageszeitung feels that such concerns are "inappropriate" as the Tata Nano has lower emissions compared to the average Volkswagen, and that developing countries shouldn't be denied the right to motorized mobility when industrialized countries should be looking to reduce their emissions and usage of cars. Die Weltre ports that the car conforms to environmental protection, and will have the lowest emissions in India. In crowded metropolitan cities like Mumbai, Ratan Tata has conceived a scheme to only offer the Nano to those individuals who do not have an automobile already. The Nano will also replace many overloaded and worn-out two-stroke polluting vehicles, both two and threewheeled. According to Anumita Roychowdhury, associate director of the Centre for Science and Environment in New Delhi, "the low-cost cars will be disastrous" in the current policy and regulatory framework.
CASES OF FIRE
There have been 7 cases where the Nano caught fire, with the first three attributed to an electrical fault in the steering column. Tata Motors has since replaced the OEM supplying the fire retardant material as well as the steering column assembly. In March 2010, a new case of a Tata Nano catching fire was reported, in which the car was being delivered from the dealership to the owner's house. This case is currently under investigation.
COMPETITORS
Rival car makers including Bajaj Auto, Fiat, General Motors, Ford Motor, Hyundai and Toyota Motor have all expressed interest in building small cars in India that are affordable to more middle-class consumers in emerging markets. The bulk of demand there is for small cars because people are much more sensitive to fuel prices. Honda and Toyota are leading the way on so called cleaner gasoline-electric hybrids, and some environmentalists argue getting prices down on these technologies is where efforts should be concentrated. Inexpensive and ecofriendly electric-cars like Tara Tiny (which has an engine producing 4 hp compared to Nano's 33 hp), Oreva Super (both reportedly even cheaper than Tata Nano) and REVA pose even more significant danger to Nano. There are also rumors of Maruti Suzuki introducing a lower priced version of Alto to counter Tata Nano.
APPENDIX
TARGET COSTING PRESSURES ON NEW PRODUCTS
CONCLUSION
In the conclusion we can say that Nano has truly lived up to its expectations and shattered the following myths Rear- engine cars are unsafe- Ferrari, Porsche, VW and Lamborghini do it why cant Tata? The Nano will pollute the planet- 623cc engine produces less CO2 than average Eu small car. The Nano will have no storage space-Sufficient storage space, under the bonnet and over the rear parcel tray, rear seats fold to dramatically increase storage space.
Tata has defied the conventional odds and sceptics in the industry through the innovation of the world's cheapest car. Tata Nano is a marvel of a product yet audaciously economical and mechanically simple. It is a breakthrough in frugal engineering where innovation is driven by cost savings and sheer ingenuity. Tata managed to reorient the basic tenets of efficiency and practicality to meet the cost target. Tata Nano achieves what most people deemed impossible through originality and ingenuity. It is a no frills car that serves the needs of the general public and India's deplorable road conditions and notorious traffic. In this sense, the production and launch of Tata Nano can be called a revolution - not only to the consumers but also to industry players. Other players are contemplating on their own versions of low cost alternatives as a result of the overwhelming response from the Indian public and all over the world. Moreover, their skepticism is met with a surprise upon seeing the model in action. The next step forward for Tata is to address the possible concerns with regard to ownership in order for customers to grasp the value proposition that Tata is trying to propagate. This includes dispelling all perceptions of shortcomings normally associated with a low-cost car through vigorous testing on real roads using real users. The basic rule of customer service still applies. Tata Nano should meet the consumer's expectations by providing a reliable and modestly safe vehicle to drive. The car, with its immense recognition gained even before its launch, is expected to fulfill the dreams of common people.
SPECIFICATIONS
Engine: 2 cylinder petrol with Bosch multi-point fuel injection (single injector) all aluminium33 horsepower (25 kW) 624 cc (38 cu in) Value Motronic engine management platform from Bosch 2 valves per cylinder overhead camshaft Compression ratio: 9.5:1 bore stroke: 73.5 mm (2.9 in) 73.5 mm (2.9 in) Power: 35 PS (26 kW; 35 hp) @ 5250 rpm Torque: 48 Nm (35 ftlbf) @ 3000 +/-500 rpm Layout and Transmission Rear wheel drive 4-speed manual transmission
Steering
Performance
Acceleration: 0-60 km/h (37 mph): 8 seconds Maximum speed: 105 km/h (65 mph) Fuel efficiency (overall): 23.6 kilometres per litre (4.24 litres per 100 kilometres (66.6 mpg-imp; 55.5 mpgUS ))
Seat belt: 4 Trunk capacity: 150 L (5.3 cu ft) Front brake: 180 mm drum Rear brake: 180 mm drum Front track: 1,325 mm (52.2 in) Rear track: 1,315 mm (51.8 in) Ground clearance: 180 mm (7.1 in) Front suspension: McPherson strut with lower A arm Rear suspension: Independent coil spring 12-inch wheels
Supplier [37] Texspin Bosch Continental AG Caparo HSI AUTO Delphi Denso FAG Kugelfischer Federal-Mogul Ficosa Freudenberg GKN INA ITW Deltar Johnson Controls Mahle Saint-Gobain TRW Ceekay Daikin/Valeo Vibracoustic Visteon
Part/system [37] Clutch Bearings Oxygen sensor, Gasoline injection system (diesel will follow), starter, alternator, brake system Gasoline fuel supply system, fuel level sensor Inner structural panels Static sealing systems (Weather Strips) Instrument cluster Windshield wiper system (single motor and arm) Rear-wheel bearing Pistons, Piston rings, Spark plugs, Gaskets, Systems protection Rear-view mirrors, interior mirrors, manual and CVT shifters, washer system Engine sealing Driveshafts Shifting elements Outside and inside door handles Seating Camshafts, spin-on oil filters, fuel filters and air cleaners Glass Brake system Clutch sets Engine mounts Air induction system
ZF Friedrichshafen Chassis components, including tie rods AG Behr Drr HVAC for the luxury version Lean Paint Shop
COMPARISON
GLOSSARY
Abnormal cost: It is the cost which is not normally incurred at a given level of output in the conditions in which that level of output is normally attained. Absolute cost: It is the total cost of any product or process. For e.g.: in a cost sheet, both absolute cost and cost per unit are depicted. Absorption costing: It is the technique of assigning all costs i.e. both fixed and variable, to the respective product/service. Actual Cost: An amount determined on the basis of cost incurred including standard cost properly adjusted for applicable variance. Administrative cost: It is the indirect cost pertaining to the administrative function which involves formulation of policies, directing the organisation and controlling the operations of an undertaking. Budgeted cost: Cost or quantitative expression of objectives and a means of monitoring progress towards achievement of those objectives for a specific period. Common Cost: The cost of resources employed jointly in the production of two or more outputs and the cost cannot be directly traced to any one of those outputs. Controllable cost: The cost, which can be influenced by the action of a specified person in an organisation, is known as controllable cost. Conversion cost: It is the cost incurred for converting the raw material into finished product. It comprises of direct labour cost, direct expenses and factory overheads. Cost: Cost represents the amount of expenditure (actual or notional) incurred on or attributable to a given thing. It represents the resources that have been or must be sacrificed to attain a particular objective. Cost unit: A cost unit is defined as a unit of quantity of product, service or time (or a combination of these) in relation to which costs may be ascertained or expressed. Cost units are usually units of physical measurement like number, weight, time, area, length, volume etc. Direct cost : Direct cost is that cost which can be identified with a cost centre or a cost unit. For e.g. cost of direct materials, cost of direct labour. Direct costing: Under direct costing, a unit cost is assigned only the direct cost, i.e., all the direct costs are charged to the relevant operations, products or processes. Direct Labor: Labor which can be attributed wholly to a particular Discretionary cost: It is an "escapable" or "avoidable" cost. In other words, it is that cost which is not essential for the accomplishment of a particular objective.
Economic order quantity: The level of inventory order that minimises total cost associated with inventory management. Estimated cost: It is an approximate assessment of what the cost will be. It is based on past data adjusted to anticipated future changes. Expired cost: Costs which cannot contribute to the production of future revenues. Imputed / Notional cost: Imputed cost is that cost which does not involve any cash outlay. Though it is a hypothetical cost, it is relevant for decision making. Interest on capital, the payment for which is not actually made, is an example of imputed cost. Inventoriable / Product cost: It is the cost which is assigned to the product. Job Costing: A job card is prepared for each job to accumulate costs.The cost of the jobs is determined by adding all the costs against the job when it is completed. This method of costing is used in printing press, foundries, motor- workshops, advertising etc. Joint cost: It is the cost of the process which results in more than one main product. Labour efficiency variance: The number of hours actually worked minus the standard hours allowed for the production achieved multiplied by the standard rate to establish a value for efficiency (favorable) or inefficiency (unfavorable) of the work force. Labor yield variance: It shows the monetary impact of using more or fewer total hours than the standard allowed = (standard mix * actual hours * standard rate) -(standard mix * standard hours * standard rate); Managed / Policy cost: It is that cost which is incurred as a matter of policy eg: R & D cost. It arises from periodic (usually annual) decisions regarding the maximum outlay to be incurred and. This cost is not tied to a cause and effect relationship between input and output. Marginal cost: It is the amount at any given volume of output by which aggregate cost changes if the volume of output changes increases/decreases) by one unit. Multiple Costing: It is a combination of two or more methods of costing mentioned above. Suppose a firm manufactures bicycles, including its components,the parts will be costed by way of batch costing but the cost of assembling the bicyclewill be done by unit costing.This method is also called composite costing. Some other industries using this method of costing are those manufacturing radios, automobiles, aeroplanes etc. Normal cost: It is the cost which is normally incurred at a given level of output, under the conditions in which that level of output is normally attained Operating Costing: The method of costing used in service rendering undertakings is known as operating costing. Period cost: It is the cost which is not assigned to the product but is charged as an expense against the revenue of the period in which it is incurred. Pre-production cost: It is that part of the development cost which is incurred for the purpose of a trial run, before the commencement of formal production.
Prime cost: Prime cost is the aggregate of direct material cost, direct labour cost and direct expenses. Prime cost percentage rate: Estimated overhead divided by the estimated prime cost.The result is expressed as a percentage. Process costing: A costing method applied where a product passes through many separate stages of manufacture.There is a continuous flow of identical products Shut down cost: The fixed cost which cannot be avoided during the temporary closure of a plant is known as shut down cost. Single Output/Unit Costing: This method of costing is used where a single product is produced.This method of costing is normally used in marble quarrying, mining, brick-kilns, breweries, etc. Standard cost: It is a pre-determined cost which is arrived at, assuming a particular level of efficiency in utilisation of material, labour and other indirect services. It is the planned cost of a product and is expected to be achieved under a particular production process under normal conditions. Standard Costing: CIMA defines standard costing as " a control technique which compares standard costs and revenues with actual results to obtain variances which are used to stimulate improved performance." Uncontrollable cost: The cost which cannot be influenced by the action of the person heading the responsibility centre is called uncontrollable cost. Fore.g. all the allocated costs and the fixed costs. Uniform Costing: It is defined as " the use by several undertakings of the same costing system, i.e., the same basic costing methods, principles and techniques." Variable cost: The cost which varies with the level of production is called variable cost i.e., it increases on increase in production volume and vice-versa. For e.g. cost of materials, cost of labour.
REFRENCES
www.accountingformanagement.com maaw.info/ArticleSummaries/ArtSumSakurai89.htm en.wikipedia.org/wiki/Target_costing www.npd-solutions.com/target.html http://www.costleadershipstrategy.com/product-costing/tata-nanoworlds-cheapest-car-2500/ ABS Motors: Authorized Tata Nano Dealers http://streamlinesupplychain.wordpress.com/2008/02/02/tata-nanoand-the-supply-chain/ http://tatanano.inservices.tatamotors.com/tatamotors/index.php?opti on=com_content&task=view&id=215&Itemid=207