Cost-Based Decision Making

Company details

Universal Manufacturing Corp. is a US based scaffold manufacturing company. The company is principally engaged in the design and manufacture of steel scaffolding, shoring and custom fabricated access equipment. It utilizes modern production techniques and equipment to design industry-specific products. The company offered products include frame scaffolding, system scaffolding, tube & clamp, shoring, steel planking and pedestrian canopy protection. Its products incorporate features such as engineered specifications of raw materials, precision welding, powder coating technology and fit and function inspection.

New product

The company plans to develop a new product for which it must follow the strategy discussed below.

Customer Focused New Product Design Process AND Target Costing

Customer Focused New Product Design Process Effective new product design requires inter-functional and powerful relationship between various business functions. In a customer focused new product design process, values are determined for design parameters based on priority levels specified by customers with quality function deployment (QFD) after determining the customer wants and needs. On the other hand, the design parameters are determined by target costing (TC) based on costs. Thus, if the priority of customer requirements provided by QFD to be aligned with component level target costs obtained from TC process, product costs will be shared among the product parts and components in the direction of customer requirements and products will be produced customers' want at desired price.

Identification of Customer Requirements

The most important feature of customer focused NPD process is to provide the product design according to customers wants in the target market in terms of function and features of the product. For this purpose, in the part of the target market customers' needs and demands about product features, functions and price are investigated with methods such as survey, interview. Then function, feature and price requirements derived from customers are evaluated by statistical methods, and customer groups are composed so that they have similar demand for similar functions and features at comparable price level. Thus, target customer groups are obtained. In accordance with data obtained from this research, a new product is designed for some or all of the target market. Also, a few types of the product can be developed for the target market. Furthermore, at this stage, the customer wants and needs will become available for QFD in the new product design process (Chen and Zering, pp. 170).

Determination of the Target Sales Price

In a customer focused new product design process, on the one hand, the design is performed in accordance with desired product specifications and business qualifications, on the other hand, the cost management process that provides the product sale price, which the customer may be willing to pay will continue. Costs are managed with TC in this process. Ansari et al. (1996) note that all traditional methods for pricing are either inappropriate or have limited usefulness for pricing products in a TC environment. The price customers are willing to pay for the features and functions are determined by the design team while identifying customers' requirements.

The expected market conditions must be taken ...