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ACCA Applied Knowledge · Management Accounting · Cost reductions and value enhancement

Which statement best describes kaizen costing?

Kaizen costing is the pursuit of continuous, small, incremental cost reductions during the production phase, usually with employee involvement and planned reduction targets each period. It differs from target costing, which focuses on cost at the design stage.

  1. AContinuous small improvements in the manufacturing phase to reduce costs by set amounts each periodCorrect
  2. BA one-off major cost reduction achieved at the design stage before production
  3. CAllocating overheads using multiple cost drivers
  4. DSetting standards based on perfect operating conditions with no waste

Explanation

Kaizen costing applies to products already in production and seeks ongoing incremental cost reductions, often with planned reduction targets per period and employee involvement. Design-stage reduction describes target costing/value engineering, which is why the second option is wrong.

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