Target Costing and Life Cycle Costing System to MiMobie Ltd Gain - Case Study Example

COMPETITIVE ADVANTAGE OF TARGET COSTING AND LIFE CYCLE COSTING SYSTEM TO MIMOBIE LTD GAIN Student’s Name Course Professor’s Name University City Date Introduction MiMobie Ltd operates in an extremely volatile and competitive market of mobile phones and accessories production. In achieving profitability, the costing system is an essential focus to relate the market dynamics and incorporating the cost planning for a competitive advantage. Targeting and lifecycle costing systems are among the cost planning for achieving competitive advantage. This paper will elaborate the targeting costing system and life cycle costing system and their competitive advantages to ensure the MiMobie Ltd achieves profitability in a volatile and competitive market. Therefore, the study seeks to discuss the competitive advantage of target and life cycle costing systems as cost planning in realizing a competitive advantage in a competitive market. Target costing system The target costing system determines the product’s life-cycle costs essential in the provision of specified functionality and quality to achieve the desired profit by the entity. The targeting cost system relates to setting the target costs through subtracting the firms desired or projected profit margin from the prevailing prices in a competitive market. The objective of target costing system is lowering the costs of the introduced product in the competitive market to realize the required profit level (Everaert & Swenson, 2014, p. 66). The MiMobie Ltd management has the fundamental objective of ensuring the phones and accessories production costs is lowered to achieve the desired prices in the competitive market. In lowering the costs of the phones and accessories production, the MiMobie Ltd has a capacity of entering into the volatile and competitive market and selling its products at a profit. MiMobie Ltd management has the mandate of ensuring the phones and accessories production meets the quality, deliveries are made on time, and the prices in the market are achieved. It is essential for the company management to relate the quality, delivery time and prices to the costs involved in production per unit (Wu, 2004, p. 209). In achieving profit in a competitive market, the target costing system would ensure the all the manufacturing costs are reduced while targeting to achieve high-quality, being in the market on time and selling at the market price. Therefore, it is the mandate of MiMobie Ltd to control the costs involved in the production process. Competitive advantages The target costing system tends to reinforce MiMobie Ltd management commitment in the entire process and product innovation of phones and accessories to achieve the market competitiveness demands. Targeting cost ensure the process in production meets the criterion set for standards and quality of the product (Zengin & Ada, 2010, p. 5599). As the management focuses on profit making, the innovative strategies are developed to cut the cost of production. In a competitive market, the innovation makes the product to be differentiated and unique and hence fetching new market at a higher price. This contributes to a competitive advantage in evolving and dynamic market. Target costing is essential in creating a market-driven manufacturing and designing of the products to realize the set prices and hence the market success. The MiMobie Ltd management has the role of concentrating into the manufacturing and design of phones and accessories to meet the market prices. Management control system through the target costing helps in supporting and reinforcing the manufacturing strategies essential to identify prevailing market opportunities to realize the value of money (EBUK & BALCIOGLU, 2011, p. 306). The MiMobie Ltd management should not concentrate on lowering the cost but using the available market opportunities to convince the customers on the real value of money based on the quality of products competitiveness. The target costing system plays major role in ensuring the produced products match with the customers’ needs and specifically the prices. In so doing, it helps in aligning the production costs features in a manner to attract the customers’ willingness to purchase the products. MiMobie Ltd production of phones and accessories, the manufacturing department tend to reduce the cycles to cut the targeted cost. This contributes to reducing the cost of the phones and accessories significantly. Furthermore, the target costing system tends to increase the teamwork among MiMobie Ltd staffs especially in departments associated with marketing, planning, manufacturing and distributing of the product (Albright & Lam, 2006, p. 158). These departments tend to engage with the customers and the product suppliers and hence integrating complete supply chain of a product. Therefore, target cost focuses on a contribution from various departments in the organization with a relatively objective of achieving the competitive advantage in the market regarding prices and quality of the product. Life cycle costing systems The Life Cycle Costing (LCC) is an economic aspect essential in relating the costs associated with production in the entire life cycle. The LLC system tends to compare the initial investment options and then providing the least cost approach alternatives. It is through the product life cycle whereby the MiMobie Ltd management would trace costs and revenues of every stage in production over a long period. The LLC has different stages including; developing phase, introduction phase, growth/maturity phase and decline/replacement phase (Waghmode & Sahasrabudhe, 2012, p. 355). These phases define different stages that LLC encounter through the production process. The management is supposed to focus on these stages to ensure the achievement of competitive prices in the market. Development phase involves all the aspects that MiMobie Ltd management should consider in LLC before commencing on production activities. The design cost helps to assess the importance and competitive advantage of the product. The assessment is essential to design the nature of the production cost to be involved and deducted from the LLC system (Farran & Zayed, 2009, p. 325). The management develops schedule and framework that relates the products from the perception of initiation and market dynamics. Therefore, development phase is essential in the initiation of the production process and LLC system. Introduction phase relates to the promotion and capacity costs. This phase is essential in ensuring the firm focus on the essential process of introducing the product to customers. The cost of promoting and advertising should be set depending on whether the product is newly introduced or existing in the market. The aspect of having introduction phase is to determine the competitiveness in the market, price, and availability of competitiveness. The growth phase is also defined as the maturity stage relates to the manufacturing, distribution and product cost. These costs are essential in determining the price of products in the market (Farran & Zayed, 2009, p. 322). The MiMobie Ltd management is supposed to consider relevant departments in the manufacturing, distribution, and production in reviewing the long-term cost in LLC system. Decline or replacement phase relates to the plants reuse cost, scrapped cost and sold costs. The LLC system at the declining phase relates to the cost incurred by the firm from the worn out aspects. The MiMobie Ltd management has the role in ensuring the firm meets the competitiveness in the market through considering the declining stage of LLC. The benefits of LLC system is a promotion of best decision-making criterion for accurate and realistic market assessment in different stages. The revenue and cost assessment in a particular life cycle stage helps in determining a framework for competitive advantage achievement (Farran & Zayed, 2009, p. 323). Furthermore, the LLC helps in promoting the long-term rewarding approach that is derived from the reduction of the production costs. The profitability achieved from innovative approaches to reduce the cost last for a long period. This indicates that the firm enjoys the innovative approach in production and hence realizing competitive advantage. Recommendation MiMobie Ltd management has to consider target cost and LLC systems to determine the approach toward realizing the competitiveness in the market. The pricing of the phone and accessories, the MiMobie Ltd management has to relate the market operation on quality, timely delivery and prices. In realizing the market competitiveness, the MiMobie Ltd has to relate the customers’ expectation, a product from rival companies and pricing of products. Innovation is the key to the production and achieving competitiveness (Albright & Lam, 2006, p. 170). The MiMobie Ltd has to incorporate the innovative strategies to cut the cost of production and compete effectively in the market. The target costing and LLC systems tend to help the management to reconsider the cost planning and use innovation to improve the quality and design of the product. Conclusion Target costing and LLC systems are the cost planning approach that helps in defining market competitive advantage. MiMobie Ltd management has the opportunity to consider the market demand in deciding cost in the production and assessing the production process. The achievement of MiMobie Ltd has based market competitiveness in prices and product innovation. Therefore, the target costing system and LLC systems provide platform to the management in designing costs planning for effective competitive advantages. Bibliography Albright, T., & Lam, M. (2006). Managerial Accounting and Continuous Improvement Initiatives: A Retrospective and Framework. Journal of Managerial Issues. Vol. 18 Issue 2, 157-174. EBUK, E., & BALCIOGLU, H. (2011). Profit Maximization with Target Costing. International Journal of Economic Perspectives. Vol. 5 Issue 3, 303-309. Everaert, P., & Swenson, D. (2014). Truck Redesign Case: Simulating the Target Costing Process in a Product Design Environment. Issues in Accounting Education. Vol. 29 Issue 1, 61-85. Farran, M., & Zayed, T. (2009). Comparative Analysis of Life-Cycle Costing for Rehabilitating Infrastructure Systems. Journal of Performance of Constructed Facilities. Vol. 23 Issue 5, 320-326. Waghmode, L., & Sahasrabudhe, A. (2012). Modelling maintenance and repair costs using stochastic point processes for life cycle costing of repairable systems. International Journal of Computer Integrated Manufacturing. Vol. 25 Issue 4/5, 353-367. Wu, H.-H. (2004). Using target costing concept in loss function and process capability indices to set up goal control limits. International Journal of Advanced Manufacturing Technology. Vol. 24 Issue 3/4, 206-213. Zengin, Y., & Ada, E. (2010). Cost management through product design: target costing approach. International Journal of Production Research. Vol. 48 Issue 19, 5593-5611. Read More