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ACCA Strategic Professional · Advanced Performance Management · Performance improvement models and techniques

Brindle Foods operates a mature production line making packaged snacks. Management introduces a programme in which employees are set a target to reduce the cost of each product by 2% every quarter, through small improvements to processes and waste reduction, in the manufacturing phase. Which statement best describes this approach?

This is Kaizen costing. It focuses on continuous, small, incremental cost reductions on an existing product during the manufacturing phase, often with a fixed periodic reduction target such as 2% per quarter. Target costing instead works at design stage before production begins.

  1. AKaizen costing, because it seeks continuous small cost reductions during the manufacturing phase of an existing productCorrect
  2. BTarget costing, because cost reductions are set before the product is designed
  3. CLife cycle costing, because costs are accumulated from conception to disposal
  4. DActivity-based costing, because overheads are reassigned to cost drivers

Explanation

Kaizen costing applies continuous incremental cost reduction to existing products in production, typically with periodic reduction targets. Target costing operates at the design stage, so option B is wrong. Life cycle costing is about tracking total costs over the whole life, not setting recurring reductions.

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