Mercedes-Benz All Activity Vehicle (AAV)
Accounting systems (both financial and cost) typically focus on costs incurred in the past. For example, the general ledger system is used to record, summarize, and report the effects of past transactions. Using historical costs, many cost management techniques focus on understanding the cost of producing a good or service. Alternatively, target costing is a technique that requires managers to forecast the expected selling price of a product and then subtract a required profit margin. The net result is called a target cost. The intent of target costing is to allow managers to proactively control costs during the design and development phases. The Mercedes case documents the target costing process used by Mercedes-Benz U.S. International. Keywords: target costing, function groups, and cost reduction.
MERCEDES-BENZE- ALL ACTIVITY VEHICLE
a) What is the competitive environment faced by MB as it considers launching the AAV? The competitive environment was that the company faced difficulty in controlling costs, material purchasing, and a fast changing market. The needs of the customer were changing and MB was facing monetary losses. With regards to the AAV market this was targeted at a segment that was expanding, the sports utility segment. Jeep, Fordand GM dominated this. Reinforce that Mercedes is a company that had never lost money. They simply built the best car their engineers could design and priced it above cost. Demand often exceeded supply. As a result, cost had never been a primary consideration. Changes include: cost competition; product innovation.
b) How has MB reacted to the changing world of luxury automobiles? MB has reacted by developing its own all activities vehicle that would compete in the fast growing sports utility segment. In addition, MB has moved its manufacturing facilities closer to the market that is the USA. Most, importantly it has become more customer oriented and has...
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