Reducing costs at the design stage
A CIMA report on the manufacturing sector from August 2010 highlights a number of current issues facing the sector. One of the issues mentioned is making products cost efficient by designing in cost effectiveness at the design stage – and this includes costs of designing in poor quality, just think of the issues with Toyota cars last year. So how can management accountants help at the crucial design stage. According to the report, a number of ways actually. First, the report states that a significant proportion of product costs (up to 80%) are determined at the design stage. Therefore manufacturers will benefit from the management accountant modelling costs for the prototypes or revisiting costs when testing is complete. Another way
management accountants can help to reduce costs during product design stage is target costing. Working backwards from the required profit margin, and the market price for the product, a target cost can be determined and within which the product must be manufactured. Target costing is an especially important technique for highly competitive markets. And finally, management accountants can help control budgets, something that is definitely familiar territory for them.
The full report can be read at the link above and can be downloaded as a PDF.
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