To understand the ways in which we understand the fuzzy logic related to target costing and hence make better decisions based on the same which will help in increasing the profitability and also help in determining apt selling price for a product. Introduction: Target Costing: The methodology of target costing was first developed and used by Japanese automobile industry. This was used to help the decision making and selling of new products, as well as analyzing the product costs and the marginal returns from each product. It has also been stated in this article that according to Cooper and Kaplan (1998) the essence of target costing can be divided into three major parts which is given as follows: Allow the market to establish the selling price of the product Determined and subtract the product margin or the profit required by the company for that particular product The difference of the above two will give us our resultant or the required target costing. The above statements can be represented in the following equation format: Target Costing = Sale Price – Required Return Fuzzy Logic: The concept of fuzzy logic came into existence due to inadequacy of the binary logic to serve certain logical situations where either true or false cannot be the answer. The binary logic was formulated initially by Aristotle (384 – 322 A.C.), the Greek philosopher with a proposition of either being true or false. This type of logic can be used in the situations where the nature of the problem and the events are very well defined, but this may not be true for many real life scenarios specially in of accounting and business areas cases, the events are vague and the outcomes cannot be clearly defined as true or false. Transitions lies betwe... ... middle of paper ... ...prices, costs and other essential variables required for proper decision making. Comments and learning: The learning that can be taken from this research paper is as follows: This has helped us in understanding the flaws of the traditional binary modeling concept. This has helped us in understanding the value of fuzzy logic in different segments of accounting, costing and finance as an alternative option for decision making. It also gave an insight about how implementation of fuzzy logic can be used to deal with the uncertainties of the real life scenarios. It has also given us the knowledge that for determining the most profitable business not only the cost price, selling price and profit per unit is important but the volume of production can also make sea changes assuming that other administrative expenses remain constant for all other possible products.
[5] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 17, Standard costing and variance analysis, p. 425-436
John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.
...e overall performance of the company given that the higher the margin, the more likely that the company will retain a profit after taxes have been withdrawn. It is calculated by subtracting the cost of interest from the earnings before income taxes.
Generally speaking, the higher the contribution margin the lower the breakeven point will be. Conversely, the lower the contribution margin is, the higher you will the breakeven point to be. The purpose of this, is to find the fixed cost and breakeven point. (Horngren, Datar and Rajan, 2015. p. 137). The contribution margin has a big impact on where the breakeven point lies. It was found that when you have more than one product we need to find the weighted average for each product in order to determine a decision. (Horngren, Datar and Rajan, 2015. p. 149). The variable costs are costs that are able to change depending on the level of output and fixed costs will not change whether or not the company produced 1 or 100 products. (Horngren, Datar and Rajan, 2015. p. 42, 55). In this situation, we had to combine the product of standard bread with the gluten free bread ang figure out a percentage of how we should split up the two. It was found that 81% of standard bread should be made and 19% of gluten free bread should be created in order to achieve
But then here is the question that we might ask, is profit the only element that should be considered when making business decisions? In my point of view, the answer is no as I will try to demonstrate throughout this paper. One quick alternative to what should be the first top priority of a business is creating a customer, Dr. Peter Drucker said. According to him “The customer is the foundation of a business and keeps it in existence”. He alone gives us employment.
Since more than 40 years, Toyota Company was thinking how to develop the traditional process costing system and the production system. Some of the companies believe that the increasing of the production is a big profit, while Toyota proved the opposite. The more you increase the products out of the need of the market, the more losses you are going to gain. This kin...
Many theories of logic use mathematical terms to show how premises lead to conclusions. The Bayesian confirmation theory relates directly to probability. When applying this theory, a logician must know the probability of a given situation, have a conditional rule, and then he or she must apply the probability when the conditional rule is applied. This theory is used to determine an outcome based on a given condition. The probability of a given situation is x, when y occurs, or the probability is z if it does not occur. If y occurs, then the outcome of the given would be x. For example, if there is a high probability that a storm will occur if a given temperature drops and there is no temperature change, then it will most likely not rain because the temperature did not change (Strevens, 2012). By using observational data such as weather patterns, a person can arrive at a logical prediction or conclusion that will most likely come true based...
The contained paper has been prepared with objectives of elaborating over the three different costing methods namely, Absorption/Full Costing, Variable/Marginal Costing, and Activity Based accounting. The first segment of the report seeks to define and illustrate the costing methods based on the personal understanding of the writer gained through the class room and the academic readings. Part two of the report takes a form of short essay, written critically to evaluate the application of standard costing and variance analysis to any size of business, and concludes with a verdict that whether or not standard costing and variance analysis is applicable to each business with consideration of its costs and benefits of the system.
A fraction-of-a-cent cost change can represent a large dollar change in overall profitability, when selling millions of units of product a month. Managers must carefully watch per unit costs on a daily basis through the production process, while at the same time dealing with materials and output in huge quantities” (From Academic
The pros of using ABC is the capacity to estimate the cost of services and individual products. By transferring overhead costs to individual units of products or services, ABC helps identify inefficient or non-profitable products or activities that eat into the profitability of efficient processes or highly profitable products (Nayab, 2011). This will help the company to determine whether to implement processes for improvement or outsource those processes. ABC highlights non-remunerative distribution channels allowing the management to adopt alternative marketing strategies or close down the channel for a more pro...
Every company has some kind of Revenue and they all have costs that are associated with running the company. It is also true that if a company wants to increase their Revenue, their costs will increase too. It is every company’s goal to maximize revenue and either through Production or Services, and minimize cost. These things are easy to figure out, but actually identifying the production and figuring out how it will increase or decrease with change is very difficult.
Cost is known as monetary value that will contribute to the benefit or obtaining any other resources. In other words, cost is a resource that we sacrifice in order to capture profit in the business companies. As an example, we sacrifice electricity, material, labour and value of machine’s life which known as depreciation during the production of a car. Therefore, these sacrifices are known as cost. There are many different views or thoughts from different individual. From a buyer’s perspective, cost of an item or product is known as prices which are charged by the sellers that may include additional charges such as mark-up cost and production cost which make the products more expensive than the original prices
Therefore, to achieve this objective, managers have to make choices in decision-making, which is the process of selecting a course of action from two or more alternatives (Weihrich & Koontz; 1994, 199). A sound decision making requires extensive knowledge of economic theory and the tools of economic analysis, that are directly related in the process of decision-making. Since managerial economics is concerned with such economic theories and tools of analysis, it is very relevant to the managerial decision-making process.
The basic aspects of the decision making process. First the problem is defined, relevant objects are observed and classified, measurements are taken of their activities and data are collected in a database or file so that the decision maker can understand the problem. From this data, functional relationships are develop from various patterns and predictions, or inferences are made. Criteria are selected for decision making and for enlisting various alternatives. From these criteria a decision model is used to select the best or most satisfactory alternatives or course of action. Management action is then taken. Finally, an accounting system is used to measure the outcome of the action and to feed the results back into the decision process for management to make the next decision. In some case, many of these processing steps are automated. In other case, they are done by the decision maker based on the information provided by the accounting information system and computer software used to assists management in the decision making process. Throughout the decison making process are communication channels through which information flows, and there are numerous feedback loops for more information on the results of actions and its bearing on future decisions.
Furthermore, brands can use the objective for the purpose of increasing the market shares also, which is a measure of the sales comparison with another brand's or in the whole industry. Aside from achieving a definite target of market share, companies can also use pricing to boost up their shares. Since, greater the price (to an appropriate level), greater are the chances to a larger proportion.