Keywords: target priced at system, concentrate on costing example, focus on costing definition
Sony Company Corporation
Chapter 1 Introduction
1. 1 Company Background
Sony. Like no other. That is the companys slogan. Sony Company is a multinational conglomerate company which headquartered in Minato, Tokyo, Japan. The corporation is one of the world's greatest mass media conglomerates with revenue exceeding US$88. 7 billion in time 2008 (Wikipedia online). http://en. wikipedia. org/wiki/Sony
Masaru Ibuka & Akio Morita was the founders of Sony. In 1946, when the business was known as Totsuko, the two founders were doing their research and manufacture of telecommunications and calculating equipment with the start-up capital of 190, 000 yen only (Wikipedia online).
After that, that they had improved the companys name to Sony, which is incorporating "sonus" the initial Latin for "sonic, " meaning Greek goddess of sound, with "sonny" symbolizing small size, or fresh boy simply as the pronunciation of Sony is the same in virtually any terminology (Sony Globals Website). They followed the name Sony in 1958. http://www. sony. net/SonyInfo/CorporateInfo/History/index. html
Sony Organization is the consumer electronics business unit and the parent company of the Sony Group with generally concentrating on five operating areas. Those sectors are consumer electronics (such as PlayStation), video games, entertainment (movies and music), financial services and more. Besides that, there are 6 principal business operations in Sony group which can be Sony Firm (Sony Electronics in the U. S. ), Sony Pictures Entertainment, Sony Computer Entertainment, Sony BMG Music Entertainment, Sony Ericsson and Sony Financial Holdings, functioning those stated sections.
Nowadays, Sony has became one of the most thorough entertainment companies and also the leading brand for electronics, videos, communications, video game consoles and it products. Furthermore, Sony is the Worldwide Top 20 Semiconductor Sales Market leaders (Wikipedia online).
1. 2 Why Sony?
At the first debate, we had give attention to cellphone companies such as Nokia, Samsung, LG and Sony Ericson, selecting the prospective company because of this project. After that, we had arrived to a realization that Sony Ericson is the most more suitable among the companies recommended but Sony Corporation is more interesting and its information is easier to search.
Sony Corporation signifies an array of business, meanwhile, manages to remain globally unique. Moreover, it's the father or mother company of the Sony Group (including Sony Ericson). Therefore, through looking about this company, we can learn more about Sony and have more knowledges about managerial techniques.
1. 3 Preview for the following Chapter
Chapter 2 - 1 article of the relationship between Sony and our selected technique, aim for costing and 9 articles about concentrate on costing are located and each of them are summarized.
Chapter 3 - Mix of Sony Corporation with the articles review which are done in section 2. Quickly discuss how Sony put focus on costing into their practice and show the result of implementation on Sony.
Chapter 4 - In this chapter, facts and informations from chapter 3 will be talked about in a far more thorough form by using our perspective as an undergraduate student. After the conversation and some evaluation, a realization will be produced.
Chapter 2 Literature Review
Sony Corporation: The Walkman Line
(vasco. nunes. googlepages. com/C1-Group2-SonyCorporation-TheWalkmanLine. pdf)
In the entire year of 1945, Sony origins name is Tokyo Telecom Research Institute basis and till the entire year of 1946, modified to Tokyo Telecom Engineering Corporation Base. This firm produced the Japan first magnetic tape recorder at 1950. At 1955, firm gets posted on over-the-counter market with 1958 company gets shown on Exchange market and altered name to SONY. From 1960 to 1974, Sony starts off internationalization.
SONY target costing system has five stages which are aim for price setting, goal margin environment use interactive process and make an effort to meet divisions long term profit objective, aim for cost setting which concentrate on cost is equal to focus on price minus aim for margin, and finally is identified whether group goal is found or not. If group target is met, it'll go to the final level which is ultimate decision making. Yet, if group concentrate on isnt met, groups have to learn alternatives to lessen development costs and increase process to increase profitability. Sonys target priced at system is so simple as the purchase price target is set predicated on product being changed during the level of aim for price setting. While for target margin, it has to ensure long-term objectives remain stable across several product cycles.
Next, there is always a good baseline for concentrate on costs because services have incremental changes. Besides, Sony has brief product life cycle which is one year and brief time-to-market needs. Sony has a very accurate sales volume estimates which derive from sales of predecessor product, amount of improvement of the new product over its forerunner, overall market fads and feedback from retailers.
At the end of every product life-cycle, Sonys inventory is almost add up to zero as absorption costs and varying costs would around give the same results. Furthermore, even Sony using Absorption costing, fixed costs wouldnt maintain the inventory more than one year.
Managerial Implications of Target Costing
by Marilyn M. Helms, Lawrence P. Ettkin, Joe T. Baxter, and Matthew W. Gordon
(www. emeraldinsight. com/Insight/ViewContentServlet?Filename=/published/emeraldfulltextarticle/pdf/3470150104. pdf)
Target costing is one of the techniques found in managerial accounting nowadays. This method is different from traditional cost-plus method. It commences with a targeted sales price for a product. The price is defined predicated on the willingness of customer to pay, considering not only the most well-liked current selling price but also the later life pattern pattern of the prices.
Target costing is started in Japan and used in over 80 percent of Japanese assembly companies and by 100 percent of Japanese car manufacturers. The dilemma for manufacturers is to complement the low prices of the global competition with the best quality products customer demand. Besides, concentrate on costing may provide as a remedy when developing new products.
It minimizes costs through the optimal use of most resources along the entire supply chain, relating suppliers and manufacturers as contributors to the look process. In price-based goal costing, an organization sets a goal cost through comparison of competitive products. They have to accumulate data on the market price and subtract their desired profit margin. This desired profit margin will almost always greater than the cost of capital.
However, it will influence by macro environmental makes and also shareholder goals. There are various companies and sectors becoming successful after adopting target priced at like Sony, Toyota, Nissan, and Olympus Optical and later added non-Japanese companies such as Mercedes, Goodyear while others.
Product Development And Cost Management Using Concentrate on Costing: A Discourse And Case Examination
by Mehmet C. Kocakülâh, School of Southern Indiana & A. David Austill, Union University (www. cluteinstitute-onlinejournals. com/PDFs/2006322. pdf)
For decades, traditional cost management, cost build up and allocation methods are being used in the making and services industries, yet they are simply failed as options for product development, planning, and cost management. This is because they concentrate on the products cost rather than on the targets of customers and the merchandise design itself.
Moreover, traditional cost systems are always overstate the expense of high-volume, standardized products and understate the costs of low-volume and customized products. They don't consider the necessity for the price, what drives the cost, or even the process or products characteristic or function which are all necessary.
Consortium for Advanced Developing - International experienced defined target priced at as a couple of management tools that is designed to direct design and planning activities for new products, providing a basis for controlling subsequent operational stages, and ensure that products achieve given profitability targets throughout their life routine (Cf. Shank, 1999). Actually, aim for costing is focuses more on customer requirements.
The question suppose is How much can the merchandise cost? but not "How much will the merchandise cost?. Aim for costing is an entire cost-reduction program and tactical earnings management system. The process comprises of discrete activities and decisions. It starts with a determination of the merchandise, its characteristics and attributes, and its best value.
Then, the merchandise itself will ultimately determine the expenses essential to produce and sell that product. Butscher and Laker summarize this first step as including description of the mark segments, identification of the competitive advantages and disadvantages, positioning of the new product within the mark segments, fine-tuning the merchandise design and costs, and market simulations (Butscher et al, 2000).
Target priced at in the NHS
Reforming the NHS from within CIMA NHS Working Group
(www. cimaglobal. com/cps/rde/xbcr/SID-0AE7C4D1-65518BE4/live/tech_dispap_target_Costing_in_the_NHS_2005. pdf)
As talk about by CIMA Public Terminology, concentrate on costing is something cost estimate derived by subtracting a desired profit percentage from a competitive market (CIMA, 2005). Focus on costing originated by Japans creation in the early 1970s with the objective increased automation and lowered their procedure cost, especially labor cost. In target costing, there are a few important point should be memorized by manager to reach their goal costs.
Firstly, managers should driven the estimation costs, there is director should be determining the gap between the goal cost and the estimation of the expense of creation because this space gives an estimate of the excess cost which must be taken out of the new product. From then on, managers should identify different ways to close the space. However, manager should think about how much costs can be taken off each product based on the worthiness of customers. Professionals also can close the difference with negotiation between different creation departments and also with their dealer to arrive at final aim for costs.
Thirdly, managers should keep an eye on and been able against the mark costs by using the typical budgeting and charging method after concentrate on costs have been driven. Besides, concentrate on costing is presenting the company some advantages and it become a primary reason companies were choose target costing as a tool to plan for the costs of products before they produced it.
Target charging become an examination which illustrates other problems that can uncover more general managerial problems. Target costing also is a drivers for cost improvement in an effort to integrate the utilization of other tools, for instance JIT. Lastly, focus on costing may help companies to encourage a concentrate on the clients.
The Competitive Environment and Strategy of Concentrate on Costing Implementers: Research from the Field by Hibbets, Aleecia R. Albright, Tom Funk, Wilfried (2003)
(http://www. entrepreneur. com/tradejournals/article/101938343. html)
Target costing have linked with an organizations competitive strategy. This competitive environment affects the ability of a business to handle a chosen strategy. This competitive strategy is organization choosers to pursue identify the way in which with which management intends to compete successfully in their market. Therefore, goal costing able to help a business to attain their companys goals by gratifying the market demands at an acceptable level of profitable because target costing can reduce the price of development when the production is being process.
Most of japan companies (over 80% of all assembly-type establishments), such as Nissan, Cannon, Sony, Toyota and so on are using goal costing (Hibbets, Aleecia, Tom, Wilfried, 2003). The primary purpose of concentrate on costing is reducing the life-cycle costs of new products while making sure customer dependence on quality of the merchandise. Several researchers were found that in current market, a market-oriented cost management system is needed triggers by the increasing of competitors, globalization, price competition, and shorter product life cycles (Hibbets, Aleecia, Tom, Wilfried, 2003).
Thus, production process must succeed, and produce high quality products in the lower costs. According to the authors, corporation which is choosing low-strategy prefers to put into practice focus on costing. These organizations may follow opportunities or cost reductions and choose new programs as managers notice them (Hibbets, Aleecia, Tom, Wilfried, 2003). Besides, differentiators also tend to adopt focus on costing because their in a position to operate from a person perspective.
Factors Influencing the prospective Costing Process: Lessons from Japanese Practice
by Robin Cooper (www. feb. ugent. be/fac/research/WP/Papers/wp_97_30. pdf)
This article discusses about five factors that impact target costing process by analyzing six Japanese creation firms that are employing this technique in their company. Target costing process can be divided into three major steps, that are market-driven costing, product-level aim for costing and component-level costing. First of all, factor that influence market-driven costing is power of competition and mother nature of the customer. To be able to survive one of the aggressive competitors, the firm has to compete head on in conditions of product price, quality and functionality.
Hence, the worthiness of target priced at to the organization boosts when the depth of competition rises. Secondly, product strategy is the factor that influences product-level focus on costing. Less number of product lines, higher rate of new product advantages and low amount of innovation will increase the benefits of focus on costing. Besides that, characteristic of the product is also the factor influencing product-level target costing.
Target priced at becomes more beneficial when product complexness, up-front purchases and the period of product development cycles rises. Last but not least, factor that influences component-level target costing is supplier-base strategy. The bigger reliance that low fat enterprises place after external suppliers raises the importance of supplier management and therefore, component-level goal costing. Then, a lot more power the organization has over its suppliers, the more benefits it can derive from target costing. Furthermore, target costing process could be more beneficial when distributor relations become more cooperative.
Design and Development of a Target-Costing System for Turning Operation
by B. Gopalakrishnan, A. Kokatnur and D. P. Gupta
(http://www. emeraldinsight. com/Insight/viewContentItem. do?contentType=Article&contentId=1593395)
The field of focus on costing is rising fast as the answer to future product development and cost decrease. Focus on costing, value chain analysis, value string improvement, and quality function deployment will vary approaches that try to achieve the same purpose: to make a product at the lowest cost with all the current required features with adherence to quality conformance and looks. Target priced at can be employed in the look of new product as well as improvement of an existing process.
The first step in determining the mark cost of a product is to establish the selling price and the companys desired profit margin for something. Machining is one of the very most widely used production operations and therefore there is a huge potential for cost reduction using the mark costing technique. Within this research, a target costing model originated for turning operation, which uses a structured approach to decrease the machining costs.
The model was tested using real time data and the results obtained were comparable to the actual worth. This model can be employed as a starting point in the introduction of an integrated concentrate on costing system for many machining functions. Machine routing, product design guidelines and the kind of manufacturing move will assume importance as overall costs will have to be considered.
by Margaret L. Gagne and Richard Discenza
(www. emeraldinsight. com/Insight/ViewContentServlet?Filename=Published/EmeraldFullTextArticle/Articles/0800100102. html)
There are 6 levels in target charging system. Target costing process start by establish a aim for earnings for new product based on market research. Probably, this focus on is below the company′s current manufacturing cost. After goal selling price establish, the dreams (target) income is subtracted to look for the aim for cost.
Next, clubs from many departments begin to perform functional cost analysis. They'll aim at proposing alternatives for lowering overall product cost in an effort to achieve the mark cost. If the cost estimate reaches the target, ultimate decision if to create the new product need to be make.
Yet, if the price estimate is above the prospective, functional cost analysis is utilized again to make changes and prepare another cost estimate. After the cost estimations are on focus on, management makes the final decision to bring in the product based on processing feasibility, market needs and consumer acceptability. After the final decision taken, new product design has to send to creation.
From the journal, there are 6 types of companies that appear gain most from concentrate on costing. The companies are that happen to be in assembly-oriented in industry (produce homogeneous products); companies that happen to be heavily involved with the diversification with their products; companies which use the technologies of factory automation, including computer-aided design, adaptable developing systems, office automation, and computer-aided processing; companies which have experienced shorter product life cycles where the payback for stock automation typically must be achieved in less than eight years; companies which must develop systems for reducing costs during the planning, design and development periods of a products life circuit; and companies which can be putting into action management methods such as just-in-time, value executive, and total quality control.
Executive Conclusion - Implementing Goal Costing
by Robert A. Howell
For a corporation to remain profitable and expand by offsetting cost raises with price increasing, there has to be strong demand and few opponents. But alas, the cost-based pricing does not foster strong cost management. Thus, focus on costing is the best solution to solve the condition where it looks at the partnership of prices and costs differently.
The basic focus on formula of "Price Profit Margin = Cost" bring the meaning of prices are motivated and establish either by competitive market causes or by the company as it aggressively reduces its prices to increase market penetration.
One of the objectives of goal costing is to allow management to work with proactive cost planning, cost management and cost decrease practices in which a products costs are designed and handled out early in the look and development routine. It's important to balance the tradeoffs over the organization and begin establishing teams to address them early in the development circuit which is the fundamental objective to earn a living, to have the ability to reinvest, develop and increase value.
The process of calculating the prospective costing starts whenever we establish the mark price in the framework of market needs and competition which we have to establish the mark profit percentage. Then, the allowable cost must be motivated and achieved. From then on, the probable cost of current products and processes must be determined and finally, the amount of the mark cost is established by which the current costs must be reduced.
Companies must set up a cross functional team which is mixed up in implementation process from the earliest design levels, using the various tools such as value anatomist in the look process and going after cost reductions using the kaizen costing when the production process has began.
Three Routes for Concentrate on Costing
by Mohamed E. Bayou, Alan Reinstein
(www. emeraldinsight. com/Insight/viewContentItem. do?contentType=Article&hdAction=lnkhtml&contentId=865552&history=false)
This article explains about the three choice routes that focus on costing projects follow to attain their goals, which are total cost management (TCM) which contain concentrate on costing and Kaizen costing, cost reducing (CC) and cost moving (CS). Monden and Hamada define target costing as the system to support cost reduction in the development and developing phase of your entirely new model, a full model change or minor model change.
Cost improvement can be divided into two types that are qualitative and quantitative. Under cost improvement, aim for costing is no actual costing system but rather is a comprehensive system to lessen costs. While under the versatility strategy, it is split into two types which are derived from the versatility of developing system and also built-in flexibility. The propensity of cost improvement is more towards suggestive because a big scale cost and the improvement through TCM consists of many experts.
Nevertheless, it offers its weaknesses too. It correlates favorably with difficulty but adversely with measurement perfection. Thus, the machine becomes more difficult to comprehend as its composition incorporates more variables and measurements. The second way of completing the prospective costing is to apply cost cutting that may reduce the avoidable inefficiencies by the truth. It is not predicated on these proper changes.
The movement of this cost cutting method is down the same cost series and cost trimming is using assertive strategy that is imported from top-down in order to reduce losses or to increase profits. Finally, the third way of employing concentrate on costing is through cost shifting which switches to different kinds or qualities of resources in the developing process.
It is not integrated based on total cost management (TCM) like the cost improvement but it leaps from one cost line to another. Cost shifting is named the evasive strategy which it switches from the existing cost range to a completely different collection without going right through a program of proper improvement.
Chapter 3 Sony and Target Costing
3. 1 Romance between Sony and Focus on Costing
There are several factors that encourage companies to make use of target costing. First of all, for the reason that that by using goal costing, it may help the firms identify the production costs, which can be fixed through the designing stage to maximize the probable of cost decrease. Moreover, focus on costing is an examination that highlights other problems which can lead to revealing more standard managerial problems.
Cooper (1995) described the cost management that is utilized by twenty Japanese creation firms, including the detailed descriptions of aim for costing that has been integrated by six firms where Sony Corporation is one of them. Sony Corporation is one of the worlds major electric companies that is discovered by way of a Japanese executive of this firm who went to an professional program as having smartly designed goal costing. Robin Cooper and Regine Slagmuler (1997) suggest that all of the target costing functions documented contain three major steps, which can be market-driven costing, product-level aim for costing and component-level target costing.
The level of your competition is one of the factors that effect market-driven costing, in which they can be directly-related. The value of target costing in a firm enhances as the strength of competitors increases. Sony has managed to identify its product predicated on their superior efficiency over their opponents. Therefore, Sony has a less well-developed concentrate on charging process than other firms because of the lower power of competition.
Besides that, if focus on costing is carried out in Sony Corporation, it is less beneficial to them when compared with other organizations such as Nissan and Toyota because the amount of technology in each new generation of the merchandise of Sony is higher. Furthermore, Sony does not use life-cycle research for up-front investment products. When up-front investments are small, the great things about target costing are lower (Robin Cooper and Regine Slagmuler, 1997).
Generally, most factors that effect target costing techniques are non-favorable for Sony as the company has developed a competitive benefit of being different due to its sustainable technology, in which they develop their products every once in awhile as well as the solutions where they focus on creating products with the latest technologies. The business is reported to be a technology head rather than price innovator.
Last but not least, as point out by Robin and Regine (1997), execution of SONY on focus on costing is less productive if equate to other firm which is also put into practice same way, such as Toyota and Nissan. However, SONY still experienced some gain when they put into practice this target priced at in their production processes because they allow to reduce their cost of development and allow them to concentrate on how to satisfy customers satisfaction.
3. 2 Aftereffect of Implementation
Table 3. 0: Financial performance of SONY
Sales and operating earnings (Yen in billions)
Net Income (Yen in billions)
R & D Investment (Yen in billions)
*At the finish of 31 March 2008.
Source: Adapter from www. sony. net, 2008
Chapter 4 Discussion and Research
Nowadays, product technology becomes one of the keys that helps a business to endure and compete therefore of todays speedily changing business environment. There's been a change towards unstable, rapidly changing marketplaces and technologies. Hence, market-driven management and cost control systems are crucial in an corporation to motivate the required consumer-oriented habit.
As stated in Chapter 3, goal costing is a market-driven management method and serves as a response to the situation of controlling and minimizing costs over the merchandise life cycle. In addition, it focuses on meeting the customers necessity and gives an organization a great chance to increase their market sales and revenue.
After discussion, we had come to your final agreement that focus on priced at system is an efficient tool that enables managers to make decision immediately besides appointment customers needs. Sony is a company that implements market-driven management. Through aim for costing system, Sony can reduce the product life routine while guaranteeing customers dependence on quality of the merchandise. As Sony is mainly producing technology products, short product life circuit is very imperative to Sony which is about one year as well as have to satisfy the brief time-to-market needs.
At the finish of each product life-cycle, Sonys inventory is almost equal to zero as absorption costs and changing costs would approximately give the same results. Besides, Sony must diversify their product which has encouraged those to implement focus on costing.
Moreover, aim for costing is an area that overlaps marketing and accounting. Marketing and design functions use focus on costing to recognize a product′s features and its value. Under this technique, Sony can control all the actions by using the focus on cost. All firm members work together to create and manufacture the merchandise at the prospective cost.
Under this approach, the marketing department can make product decisions without recognizing costs as given. Hence, it will increase strain on the sales force to operate within the variables of the current market environment. Target costing really helps to manage costs effectively in both the design and creation stage.
Overall, in order to survive among the aggressive rivals, SONY must compete at once in terms of product price, quality and functionality. Hence, the worthiness of target costing to the company enhances when the power of the competition increases. Besides, concentrate on costing will be more beneficial when customers are highly complex, preferences change swiftly and understand their future product requirements. Focus on costing is the best solution for Sony to solve the challenge where it looks at the partnership of prices and costs in different ways.
Although the strategy is merely a model - target price minus profit percentage = goal cost, nowadays the highly competitive market and exterior environment can make the approach as a proper management tool. It can be integrated into our management accounting stock portfolio and provide the company with economical value added and tactical benefits. It'll allow firm to focus on the use of limited resources to increase opportunity to achieve target return on investment.
Target costing can be defined as one of the various tools and methods that are being used by the management to plan activities and direct design for new products, to give a basis for controlling subsequent operational stages and also to ensure that the products produced achieve the targeted success throughout their life routine.
Target costing is much more related to marketing research in which it is done to determine the price that customers are prepared to pay for a specific product, given its efficiency, quality and swap products made available from their opponents. Thus, the information obtained can be utilized by the product designers to focus on the desired attributes and features of something despite incorporating new features and the merchandise must be forward-looking to make sure the merchandise differentiation and an acceptable product life.
Target costing could possibly be the solution when expanding new products and through the perfect use of most resources along the complete supply chain, the costs can be greatly reduced.
From our understanding as Managerial Accounting students, the strategy that is implemented by Sony Company, which is goal costing, can help the professionals inside the organization make vital decisions especially in producing low-cost products where it is important in maximizing the profits as managerial accounting emphasize on the near future where the professionals have to arrange for their companys profit.
The future is not only a reflection of what has occurred before but there are always changes either in the monetary condition, competitive condition or even the customer desires and needs. Aim for costing suits the requirements of most managers in satisfying customers needs and at the same time gain profit for their organizations as it focuses less on cost and considers customers desires and requests to be the primary cost drivers.
Nowadays, supply chain partners are decided on before the product development, irrespective whether aim for costing is being used or not. But deciding on the best supply chain partner make a difference in whether the focus on cost is reached or not. By implementing concentrate on priced at within the resource chain, they can choose the best suited product development and process systems, eliminate cost overruns, limit the look problems and deliver the lowest priced, highest appreciated products to the ultimate customers.
The professionals make decisions predicated on three main aspects, which are organizing, directing and motivating and managing. Planning involves determining alternatives and selecting one which works with the organizations strategy and objectives, in which it's the managers duties to be sure the maximization of their profits.
By using the mark costing, it is one of the ways that can be done to achieve this goal. On the other hand, for directing, it can be used to control the plan that recently been setup earlier to make sure that the target can be achieved as the merchandise must be profitable during their life cycle before the decision should be produced to allow the merchandise to come quickly to market.
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