A case study of economic value added in target costing
In recent years, as the current business environment has become more competitive, its tend to be much more important for managers to develop internally, externally and logically business strategies and use tools, theories to support their decision-making, planning and control. Therefore, in order to response these needs, Strategic Management Accounting (SMA) has drew attention from academic accountants. As mentioned in the 'Management Accounting Research' (Margaret, Lynda, Gloria, 2012), some of the developments in strategies planning and control are Strategic Business Units (SBUs) a comprehensive set of performance measures designed to assist managers in implementing competitive strategies and monitoring performance with respect to them (Kaplan and Norton, 2000) and Balanced Scorecard mission and business strategy and therefore use to analyse performance from a strategic perspectives(Shank and Govindarajan 1993; Simons 2000). All of these talked above is the aim of this case study to contribute to both the management accounting and value based management literatures by analyzing how a muti-national company can integrate Economic Value Added (EVA) into a target costing system. In this essay, I will firstly, review and discuss the main issues in the case study in relation to management control and accountable, in terms of target costing and management performance. Also by looking at the case study that the target costing process used for the test group of Electronics the German company, therefore, to get the general idea whether it is possible to combine other SMA techniques with target costing. Secondly, I will critically evaluate the role of accountants and accounting practices in managing contemporary organizations. In order to classify the responsibilities and roles for accountants and understand the use of accounting practices in managing organization. Finally, a theoretical perspective which is contingency theory will be used by me to analyze the case study to see under a uncertain environment how the organization will act flexibly.
II. Issues in relation to management control and accountable. According to this case study, we know that Electronics is a German based muti-national with a Difficult to identify variables in cause-effect terms and their impact on management accounting systems through investment in precision engineering (Margaret, lynda & Gloria, 2012). It is mentioned in the historical context of the case study, is that Germany faced increasing international competition and a period of weak growth in 1990s. This has illustrated that at the same time Electronics was also suffering a difficult time, which might cause a huge impact on the company's business performances. Above talked is the first issue I am going to give a comprehensive analysis.
In the early 1990s the company harmonised its financial and cost accounting system, and introduced target costing across the group. The motivation for introducing target costing are not fully documented but include references to rising costs resulting from growing product complexity and the challenges presented by increasing international competition (Margaret, lynda & Gloria, 2012). In order to gain more market competitiveness, target costing is widely used across the whole group to reduce the cost of product as much as possible through out the entire product life cycle, at that time the target costs were calculated by the formula:
Target cost (Allowable cost)= expected sales price － target net operating profit after taxes (NOPAT) As competition started to erode profit, the challenge for the group was to find a way of balancing customer requirements, market allowable prices and required profit margins over the long term and across a wide array of different businesses. There are generally four process steps for target costing,...
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