Article Review: Target Cost Management
An article by Louise Ross puts target costing in effect with agricultural and the farming industry, explaining how this system may already be partially in use. Louise Ross provides evidence of the advantages and disadvantages of target costing within the food supply chain.
According to Ross, participants in the food supply chain were already using some form of target cost management, but the system was not formalized into specific aspects. Ross (2008) refers to target costing as not a “specific management technique”, but a more general idea of “target cost management” as seen as a management philosophy and “market-driven approach”. Ross’s research has revealed “evidence that the contracts
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There are more possibilities of accident, like livestock becoming diseased, or a crop becoming destroyed by weather. These are inherent risks that also need to be considered when farmers are working on establishing a target cost for their product. Other obstacles that farmer’s face is agricultural policy, tariffs and subsidies where the commodity prices can be altered when having to export or import their product (Ross, 2008).
In relation to target costing management, a simple equation can be used to evaluate whether it is a system that can work for your product. The equation is as follows: anticipated price minus required return equals target cost (Ross, 2008). Ross (2008) also comments on fluctuating prices being a problem for farmers, thus causing anticipated prices to vary. Moreover, return on capital is something that is not commonly used in the farming industry (Ross, 2008). Ross (2008) explains that typical farming operating costs is accounted as a whole for the company and not for specific activities. Gross margins in the farming industry, is also difficult in that expenses is considered a fixed cost. This involves labor and machinery, which are usually not fixed expenses, and is where a more allocation based
Assuming that the company’s goal is to maximize profits, the current cost system is not an appropriate tool for strategic planning. The ambiguity of the overhead costs per product makes it difficult to accurately analyze the cause and effect relationships of changes and/or improvements to specific product line.
There are also many risks and disadvantages of agriculture. Whenever these disadvantages come into effect, the consequences could be major. In some cases, things can get as bad as the potato famine. Farmers are always reliant on the crops for their source of food. Many factors could interfere with the production of food such as a natural disaster, weather, soil erosion, and the timing and season when to plant crops. If one factor occurred, it could possibly fatally ruin many of the crops which would make many starve. In agricultural
Target Corporation was founded in 1902 and headquartered in Minneapolis, Minnesota. Target Corporation operates general merchandise and food discount stores throughout the United States. The company’s products range from household essentials, to electronics, to toys, to apparel and accessories, to home furnishings, to food and pet supplies. Most of the merchandise is sold under Target and SuperTarget trademarks, but it also sells under private-label brands, such as Archer Farms, Circo, Merona, and Room Essentials. The company also offers merchandise through programs like ClearRx, Great Save, and Home Design Event. Additionally, Target markets its merchandise under license and designer
1 Farmers may not totally understand the product value. They may not easily accept new product that they have never heard about.
farms to keep their prices low, can eventually cause the market to fail. (58) The article The
Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead.
The agricultural industry: the farms, plants, animals, and farmers, have supported this great country for so long, but lately we have turned our backs on it. Today, we live in a materialistic society, people wanting more and better items, not settling for products that will accomplish the same job.From looking at the fruits and vegetables in the grocery store, we see the bruised or smaller ones left, while the big and brightly colored ones are selected first. In our society today, changes are constantly being made to help expand and evolve the agricultural industry, but it has yet been able to do so. To this day farmers across this nation have not been completely successful in providing for the people who make up this country. In the stores
Added to the financial risk of farming, already gambling on soil and weather and crops.
As a farmer you need to watch the changing prices for the products. They use different actions to keep themselves safe from unpredictable changes in the markets. Farmers also track disease and weather conditions closely, because disease and bad weather may have a bad blow on crops or animal health. When farmers plan ahead they may be able to store their crops or keep their animals to take
The procurement section of Target’s supply chain is an essential part of how it replicate costs to customer requirements. The overall affiliation between customer fulfillment and the supply chain are closely linked to products that are designated based on benchmarks that have been appropriately matched to target costing structured with market criticism and feedback provided. When focusing on purchasing products to sell to customers, the organization selects and processes the best option that best matches Target’s
John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.
Threats include farmers reluctance, competition, non-adequate pricing strategy, low trained salesforce and technicals, higher costs then forecasted.
with a number of strategic issues facing a capital-intensive, mature industry. Their product costing system was
INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to
Political factors impact the agricultural sector in factors relating to regulation, distribution, and consumption of foods in a given country. Government policies and imposed regulations have a direct effect on nutritional choices that a consumer makes, and this, in turn, affects the agriculture market (KPMG, 2012). For example, policies governing food prices or the amount of information that a consumer will receive affects the choice of the consumer. Food regulation and safety measures implemented influence the supply of food products, and ultimately determines the market choice for consumers (KPMG, 2012). Economic factors have a direct effect on the agricultural industry. On one hand, the input cost such as the price of seeds, fertilizers, and cost of labor affect the productivity of the industry. The economic status of a country also affects the industry’s productivity. For example, in developing countries, the agricultural sector is less developed owing to limited resource input and poor infrastructure (KPMG, 2012).