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

Which statement best describes the Kaizen costing approach?

Kaizen costing is continuous, small, incremental cost reduction applied to existing products during the production phase, usually involving employees. It differs from target costing, which sets a cost from the market price at the design stage, and from activity-based costing.

  1. ASetting the cost for a new product by deducting required profit from the market price
  2. BReducing costs through continuous small improvements during the production phase, often with employee involvementCorrect
  3. CAllocating costs to activities and then to products using cost drivers
  4. DReducing the cost of a product by removing all features that customers do not value at the design stage only

Explanation

Kaizen costing aims at continuous, incremental cost reduction in the manufacturing phase of an existing product, typically using worker suggestions. Option A describes target costing and option C describes activity-based costing. Option D is value engineering at the design stage.

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