成本与管理会计（第16版）课件汇 亨格瑞 第13-24章 Strategy,Balanced Scorecard-Performance Measurement,Compensation

CostAccountingSeventeenthEdition,GlobalEditionChapter13Strategy,BalancedScorecard,andStrategicProfitabilityAnalysisLearningObjectives13.1Recognizewhichoftwogenericstrategiesacompanyisusing13.2Understandthefourperspectivesofthebalancedscorecard13.3

Analyzechangesinoperatingincometoevaluatestrategy13.4IdentifyunusedcapacityandhowtomanageitStrategyStrategyspecifieshowanorganizationmatchesitsowncapabilitieswiththeopportunitiesinthemarketplacetoaccomplishitsobjectives.Strategydescribeshowanorganizationcancreatevalueforitscustomerswhiledifferentiatingitselffromitscompetitors.Athoroughunderstandingoftheindustryiscriticaltoformulatingandimplementingasuccessfulstrategy.Industryanalysisfocusesonfiveforces.IndustryAnalysisFocusesonFiveForcesNumberandstrengthofcompetitorsPotentialentrantstothemarketAvailabilityofequivalentproductsBargainingpowerofcustomersBargainingpowerofinputsuppliersTwoBasicBusinessStrategiesProductdifferentiationisanorganization’sabilitytoofferproductsorservicesperceivedbyitscustomerstobesuperioranduniquerelativetotheproductsorservicesofitscompetitors.Competitiveadvantage:Brandloyaltyandthewillingnessofcustomerstopayhigherprices.Costleadershipisanorganization’sabilitytoachievelowercostsrelativetocompetitorsthroughproductivityandefficiencyimprovements,eliminationofwaste,andtightcostcontrol.Competitiveadvantage:Lowersellingprices.StrategyImplementationandtheBalancedScorecard(1of2)Manycompanieshaveintroducedabalancedscorecardtotrackprogressandmanagetheimplementationoftheirstrategies.Thebalancedscorecardtranslatesanorganization’smissionandstrategyintoasetofperformancemeasuresthatservesastheframeworkforimplementingtheorganization’sstrategy.Thescorecardmeasuresfromfourperspectives:FinancialCustomerInternalbusinessprocessesLearningandgrowthStrategyImplementationandtheBalancedScorecard(2of2)Themeasuresthatacompanyusestotrackperformancedependonitsstrategy.Thissetofmeasuresiscalleda“balancedscorecard”becauseitbalancestheuseoffinancialandnonfinancialperformancemeasures.Ausefulfirststepindesigningabalancedscorecardisastrategymap.Astrategymapisadiagramthatdescribeshowanorganizationcreatesvaluebyconnectingstrategicobjectivesinexplicitcause-and-effectrelationshipswitheachotherinthefinancial,customer,internal-business-process,andlearning-and-growthperspectives.StrategyMapExampleExhibit13.2StrategyMapforChipset,Inc.,for2020StructuralAnalysisofStrategyMaps(1of2)Structuralanalysisisusedtothinkcarefullyaboutthecausallinksinthestrategymapbeforedevelopingthebalancedscorecard.Fivetypesofconditionsareconsideredinastructuralanalysis(definedinthenextslide):StrengthoftiesOrphanobjectivesFocalpointsTriggerpointsDistinctiveobjectivesStructuralAnalysisofStrategyMaps(2of2)Strengthofties—Tiesarethecausallinksbetweenstrategicobjectivesandcanbequalifiedasstrong,moderate,orweak.Orphanobjectives—Anorphanobjectivehasonlyweaktiesleadingoutofittootherstrategicobjectives.Focalpoints—AfocalpointisastrategicobjectivethathasmanyotherlinksfunnelingINTOit.Triggerpoints—AtriggerpointisastrategicobjectivewheremanytiesspurOUTfromit,resultingintheachievementofmanystrategicobjectives.Distinctiveobjectives—Thesearestrategicobjectivesthatdistinguishanorganizationfromitscompetitors,basedontheorganization’sstrategy.TheFourPerspectivesofaBalancedScorecard(1of5)Financial—profitsandvaluecreatedforshareholdersCustomer—thesuccessofthecompanyinitstargetmarketInternalbusinessperspective—theinternaloperationsthatcreatevalueforcustomersLearningandgrowth—thepeopleandsystemscapabilitiesthatsupportoperationsTheparticularmeasureacompanyusestotrackperformancewilldependonitsstrategy.TheFourPerspectivesofaBalancedScorecard(2of5)FINANCIAL:EvaluatestheprofitabilityofthestrategyandthecreationofshareholdervalueUsesthemostobjectivemeasuresinthescorecardTheotherthreeperspectiveseventuallyfeedbackintothisdimensionExhibit13.3TheBalancedScorecardforChipset,Inc.,for2020TheFourPerspectivesofaBalancedScorecard(3of5)CUSTOMER:Identifiestargetedcustomerandmarketsegmentsandmeasuresthecompany’ssuccessinthesesegmentsHereweseesomemeasuresthatmightbeused,includingmarketshare,numberofnewcustomers,andcustomer-satisfactionratings.Exhibit13.3TheBalancedScorecardforChipset,Inc.,for2020TheFourPerspectivesofaBalancedScorecard(4of5)INTERNALBUSINESS:Focusesoninternaloperationsthatcreatevalueforcustomerswhich,inturn,helpachievefinancialperformanceExhibit13.3TheBalancedScorecardforChipset,Inc.,for2020TheFourPerspectivesofaBalancedScorecard(5of5)LEARNINGANDGROWTH:Identifiesthepeopleandinformationcapabilitiesnecessaryforanorganizationtolearn,improve,andgrow.Thesecapabilitieshelpachievesuperiorinternalprocessesthatinturncreatevalueforcustomersandshareholders.Exhibit13.3TheBalancedScorecardforChipset,Inc.,for2020BalancedScorecardImplementationAsuccessfulbalancedscorecardimplementationmusthavecommitmentandleadershipfromtopmanagementandmustbecommunicatedtoallemployees.Forthebalancedscorecardtobeeffective,managersmustviewitasafairwaytoassessandrewardallimportantaspectsofamanager’sperformanceandpromotionprospects.FrequentlyCitedBalancedScorecardMeasuresExhibit13.4FrequentlyCitedBalancedScorecardMeasuresDifferentStrategiesLeadtoDifferentScorecardsAcompanythatfollowsacost-leadershipstrategywilllikelyhavedesignedtheirbalancedscorecardtobedifferentfromacompanythatfollowsaproduct-differentiationstrategy.Companiesareincreasinglyrecognizingthattheymustcontinuallyearntherighttooperateinthecommunitiesandcountriesinwhichtheydobusiness.Failuretoperformadequatelyonenvironmentalandsocialoutcomesputsatriskacompany’sabilitytodeliverfuturevaluetoshareholders.EnvironmentalandSocialPerformanceandtheBalancedScorecard(1of2)Asustainablesocietyisonewhere“thecurrentgenerationmeetsitsneedswithoutjeopardizingtheabilityoffuturegenerationstomeettheirneeds.”(DefinedbytheBrundtlandCommission)Sustainabilityhastwofundamentalschoolsofthought.Managersshouldfocusonlyonlong-runfinancialperformance,andnotgobeyondtheminimumlevelsrequiredbylaw.Accordingtothisview,companies’responsibilitiesinsocietyareadequatelycapturedbythesolegoaloflong-runfinancialperformance.EnvironmentalandSocialPerformanceandtheBalancedScorecard(2of2)Companiesandmanagersmustpursueenvironmentalandsocialobjectivesbeyondwhatislegallyrequiredandinadditiontolong-runfinancialgoals—oftencalledthetriplebottomline.Accordingtothisview,theenvironmentalandsocialobjectivesareoverallgoalsnexttolong-runfinancialperformance,notjustameanstoanend.Managersinterestedinmeasuringenvironmentalandsocialperformanceincorporatethesefactorsintotheirbalancedscorecardstosetprioritiesforinitiatives,guidedecisionsandactionsandfueldiscussionsaroundstrategiesandbusinessmodelstoimproveperformance.FeaturesofaGoodBalancedScorecard(1of2)Tellsthestoryofafirmsstrategy,articulatingasequenceofcause-and-effectrelationships—thelinksamongthevariousperspectivesthatalignimplementationofthestrategy.Helpstocommunicatethestrategytoallmembersoftheorganizationbytranslatingthestrategyintoacoherentandlinkedsetofunderstandableandmeasurableoperationaltargets.FeaturesofaGoodBalancedScorecard(2of2)Mustmotivatemanagerstotakeactionsthateventuallyresultinimprovementsinfinancialperformance.Appliesprimarilytofor-profitentitiesbuthassomeapplicationtonot-for-profitentitiesaswellLimitsthenumberofmeasures,identifyingonlythemostcriticalones.Highlightsless-than-optimaltrade-offsthatmanagersmaymakewhentheyfailtoconsideroperationalandfinancialmeasurestogether.PitfallsinImplementingaBalancedScorecardManagersshouldnotassumethecause-and-effectlinkagesareprecise:Theyaremerelyhypotheses.Managersshouldnotseekimprovementsacrossallofthemeasuresallofthetime.Managersshouldnotuseonlyobjectivemeasures;subjectivemeasuresareimportantaswell.Despitechallengesofmeasurement,topmanagementshouldnotignorenonfinancialmeasureswhenevaluatingmanagersandotheremployees.EvaluatingtheSuccessofStrategyandImplementationToevaluatethesuccessofacompany’sstrategyandimplementation,managementmustcomparethetargetandactualperformancecolumnsinthebalancedscorecard.Ifacompanydoesnotmeetitstargetsonthetwoperspectivesthataremoreinternallyfocused(learningandgrowthandinternalbusinessprocesses),itwouldconcludethatitdidnotimplementitsstrategybecauseitdidnotimplementtheactivitiesthatwouldgiveitcompetitiveadvantage.Ifacompanyperformswellintheinternallyfocusedperspectivesbutnotcustomerandfinancialmeasures,itmayconcludethatthestrategywasfaultybecausetherewasnoeffectoncustomersoronlong-runfinancialperformanceandvaluecreation.StrategicAnalysisofOperatingIncome(1of2)Toevaluatethesuccessofastrategy,managersandmanagementaccountantsneedtolinkstrategytothesourcesofoperating-incomeincreases.Todothisevaluation,managementaccountantsstartbyanalyzingthreemainfactors:Thegrowthcomponentmeasuresthechangeinoperatingincomeattributablesolelytothechangeinquantityofoutputsoldbetweenyears.StrategicAnalysisofOperatingIncome(2of2)Theprice-recoverycomponentmeasuresthechangeinoperatingincomeattributablesolelytochangesinpricesofinputsandoutputsbetweenyears.Thiscomponentmeasuresthechangeinrevenuesasaresultofachangeinoutputpricecomparedwiththechangeincostsasaresultofchangeininputprices.Theproductivitycomponentmeasuresthechangeincostsattributabletoachangeinthequantityofinputsusedincurrentyearrelativetothequantityofinputsthatwouldhavebeenusedintheprioryeartoproducethecurrentyearoutput.Thiscomponentmeasurestheamountbywhichoperatingincomeincreasesbyusinginputsefficientlytolowercosts.FormulasUsedforStrategicAnalysisofIncomeSummary(1of2)Herearetheformulasusedinthestrategicanalysisofincomecategorizedintothreecomponents:GrowthComponentRevenueeffectofgrowthCosteffectofgrowthCosteffectofgrowthforFixedcostsPrice-RecoveryComponentRevenueeffectofpricerecoveryCosteffectofpricerecoveryCosteffectofpricerecoveryforfixedcostsFormulasUsedforStrategicAnalysisofIncomeSummary(2of2)Herearetheremainingformulasusedinthestrategicanalysisofincome:ProductivityComponentCosteffectofproductivityforvariablecostsCosteffectofproductivityforfixedcostsTheseformulasforeachofthesecomponentsarereviewedinthenexteightslides.FormulasUsedforStrategicAnalysisofIncomeDetails(1of8)REVENUEEFFECTOFGROWTHThroughouttheseslides,we’llusevaluesfromthetextbookexampletoillustratetheformulas:Here,actualunitsofoutputsoldinthecurrentperiodare1,150,000;actualunitsofoutputsoldinthepriorperiodare1,000,000;andthesellingpriceinthepriorperiodwas$23/unit.Therefore,(1,150,000–1,000,000)×$23=$3,450,000FFormulasUsedforStrategicAnalysisofIncomeDetails(2of8)COSTEFFECTOFGROWTH(3,000,000sq.cmx(1,150,000/1,000,000))–3,000,000sq.cmx$1.40inputprice=$630,000UThecosteffectofgrowthmeasureshowmuchcostswouldhavechangedintheprioryearifproductionwouldhavebeenatcurrentyearlevels.Thisisdoneseparatelyforvariableandfixedcosts.FormulasUsedforStrategicAnalysisofIncomeDetails(3of8)COSTEFFECTOFGROWTHFORFIXEDCOSTSAssumingadequatecurrentcapacity:sq.cm=$0.00(3,750,000sq.cm–3,750,000sq.cm)×$4.28per=$0FormulasUsedforStrategicAnalysisofIncomeDetails(4of8)REVENUEEFFECTOFPRICERECOVERY($22perunitcurrentyear–$23perunitprioryear)×1,150,000actualunitsofoutputsoldincurrentyear=$1,150,000UFormulasUsedforStrategicAnalysisofIncomeDetails(5of8)COSTEFFECTOFPRICERECOVERY($1.50persq.cmcurrentyear–$1.40persq.cmprioryear)×3,450,000sq.cmrequiredforcurrentyearoutputinprioryear=$345,000UFormulasUsedforStrategicAnalysisofIncomeDetails(6of8)COSTEFFECTOFPRICERECOVERYFORFIXEDCOSTS($4.35persq.cm–$4.28persq.cm)×3,750,000sq.cm=$262,500UFormulasUsedforStrategicAnalysisofIncomeDetails(7of8)COSTEFFECTOFPRODUCTIVITYFORVARIABLECOSTS$2,900,000sq.cmforcurrentperiodoutput–3,450,000sq.cmforcurrentperiodoutputinpriorperiod)×$1.50persq.cm=$825,000FFormulasUsedforStrategicAnalysisofIncomeDetails(8of8)COSTEFFECTOFPRODUCTIVITYFORFIXEDCOSTSAssumingadequatecurrentcapacity:(3,500,000sq.cm–3,750,000sq.cm)×$4.35persq.cm=$1,087,500FFurtherAnalysisofGrowth,Price-Recovery,andProductivityComponentsExhibit13.6StrategicAnalysisofProfitabilityConsistentwiththeorganization’sstrategyanditsimplementation,productivitycontributed$1,912,500totheincreaseinoperatingincome,andgrowthcontributed$2,820,000.Pricerecoverydecreasedoperatingincomeby$1,757,500.Underdifferentassumptionsaboutthechangeinsellingprice,theanalysiswillattributedifferentamountstothedifferentstrategies.DownsizingandtheManagementofCapacityManagerscanreducecapacity-basedfixedcostsbymeasuringandmanagingunusedcapacity.Unusedcapacityistheamountofproductivecapacityavailableoverandabovetheproductivecapacityemployedtomeetconsumerdemandinthecurrentperiod.Tobetterunderstandthisconceptofunusedcapacity,itisnecessarytodistinguishengineeredcostsfromdiscretionarycosts.ManagingUnusedCapacityDownsizing(rightsizing)isanintegratedapproachofconfiguringprocesses,products,andpeopletomatchcoststotheactivitiesthatneedtobeperformedtooperateeffectivelyandefficientlyinthepresentandfuture.Manycompanieshavedownsizedtofocusontheircorebusinessesandhaveinstitutedorganizationchangestoincreaseefficiency,reducecosts,andimprovequality.Downsizingoftenmeanseliminatingjobs,whichcanadverselyaffectemployeemoraleandthecompany’sculture.TermstoLearnBalancedscorecardProductdifferentiationCostleadershipProductivityDiscretionarycostsProductivitycomponentDownsizingRightsizingGrowthcomponentStrategymapPartialproductivityTotalfactorproductivity(TFP)Price-recoverycomponentUnusedcapacityCostAccountingSeventeenthEdition,GlobalEditionChapter14PricingDecisionsAndCostManagementLearningObjectives(1of2)14.1Discussthethreemajorfactorsthataffectpricingdecisions14.2Understandhowcompaniesmakelong-runpricingdecisions14.3Priceproductsusingthetarget-costingapproach14.4Applytheconceptsofcostincurrenceandlocked-incosts14.5Priceproductsusingthecost-plusapproachLearningObjectives(2of2)14.6Uselife-cyclebudgetingandcostingwhenmakingpricingdecisions14.7Describetwopricingpracticesinwhichnon-cost factorsareimportantMajorFactorsThatAffectPricingDecisionsHowcompaniespriceaproductorserviceultimatelydependsonthedemandandsupplyforit.Demandandsupplyhavethreeinfluences:CustomersCompetitorsCostsThreeInfluencesonDemandandSupplyCustomersinfluencepricethroughtheireffectonthedemandforaproductorservice,basedonfactorssuchasproductfeaturesandquality.Competitorsinfluencepricethroughtheirtechnologies,plantcapacities,andoperatingstrategiesthataffecttheircosts.Costsinfluencepricesbecausetheyaffectsupply.Thelowerthecostofproducingaproduct,thegreaterthequantityafirmiswillingtosupply.CostingandPricingfortheLongRunShort-runpricingdecisionshaveatimehorizonoflessthanoneyearandincludepricingaone-time-onlyspecialorderwithnolong-runimplicationsandadjustingproductmixandoutputvolumeinacompetitivemarket.Long-runpricingbuildslong-runrelationshipswithcustomersbasedonstableandpredictableprices.Managerspreferastablepricebecauseitreducestheneedforcontinuousmonitoringofprices,improvesplanning,andbuildslong-runbuyer-sellerrelationships.CostAllocationRecallthatindirectcostsofaparticularcostobjectarecoststhatarerelatedtothatcostobjectbutcannotbetracedtoitinaneconomicallyfeasible(cost-effective)way.Thesecostsoftencomprisealargepercentageoftheoverallcostsassignedtocostobjects.Costallocationsandproductprofitabilityanalysesaffecttheproductspromotedbyacompany.Toincreaseprofits,managersfocusonhigh-marginproducts.PurposesofCostAllocation Exhibit14.1PurposesofCostAllocationPurposeExamplesToprovideinformationforeconomicdecisionsTodecideonthesellingpriceforaproductorserviceTodecidewhethertoaddanewproductfeatureTomotivatemanagersandotheremployeesToencouragethedesignofproductsthataresimplertomanufactureorlesscostlytoserviceToencouragesalesrepresentativestoemphasizehigh-marginproductsorservicesTojustifycostsorcomputereimbursementamountsTocostproductsata“fair”price,oftenrequiredbylawandgovernmentcontractsTocomputereimbursementforaconsultingfirmbasedonapercentageofthecostsavingsresultingfromtheimplementationofitsrecommendationsTomeasureincomeandassetsTocostinventoriesforreportingtoexternalpartiesTocostinventoriesforreportingtotaxauthoritiesAlternativeLong-RunPricingApproachesHowshouldmanagersuseproductcostinformationtopricetheirproducts?Therearetwodifferentapproachesforpricingdecisions:Themarket-basedapproachasks:Givenwhatourcustomerswantandhowcompetitorswillreacttowhatwedo,whatpriceshouldwecharge?Thecost-basedapproachasks:Givenwhatitcostsustomakethisproduct,whatpriceshouldwechargethatwillrecoupourcostsandachieveatargetreturnoninvestment(alsoknownascost-plus)?Market-BasedApproach:TargetCostingforTargetPricing(1of3)Beforesettingpricesunderanyapproach,managersneedtounderstandcustomersandcompetitorsforthreereasons:Lower-costcompetitorscontinuallyrestrainprices.Productshaveshorterlives,whichleavescompanieslesstimeandopportunitytorecoverfrompricingmistakes,lossofmarketshare,andlossofprofitability.Customersaremoreknowledgeablebecausetheyhaveeasyaccesstopriceandotherinformationonlineanddemandhigh-qualityproductsatlowprices.Market-BasedApproach:TargetCostingforTargetPricing(2of3)StartswithatargetpricewhichistheestimatedpriceforaproductorservicethatpotentialcustomersarewillingtopayThetargetpriceisestimatedbasedonanunderstandingofcustomers’perceivedvalueforaproductorservice,andhowcompetitorswillpricecompetingproductsorservices.Market-BasedApproach:TargetCostingforTargetPricing(3of3)FourStepsinDevelopingTargetPricesandTargetCostsDevelopaproductthatsatisfiestheneedsofpotentialcustomers.Chooseatargetprice.Deriveatargetcostperunitbysubtractingtargetoperatingincomeperunitfromthetargetprice.Performvalueengineeringtoachievetargetcost.ValueEngineering,CostIncurrence,andLocked-InCosts(1of5)ValueEngineeringValueengineeringisasystematicevaluationofallaspectsofthevaluechain,withtheobjectiveofreducingcostsandachievingaqualitylevelthatsatisfiescustomers.Valueengineeringentailsimprovementsinproductdesigns,changesinmaterialsspecifications,andmodificationsinprocessmethods.Toimplementvalueengineering,managersmustdistinguishvalue-addedactivitiesandcostsfromnon-value-addedactivitiesandcosts.ValueEngineering,CostIncurrence,andLocked-InCosts(2of5)ValueEngineeringTerminologyAvalue-addedcostisacostthat,ifeliminated,wouldreducetheactualorperceivedvalueorutility(usefulness)customersexperiencefromusingtheproductorservice.Non-value-addedcostsarecoststhat,ifeliminated,wouldnotreducetheactualorperceivedvalueorutility(usefulness)customersgainfromusingtheproductorservice.Itisacostthecustomerisunwillingtopayfor.ValueEngineering,CostIncurrence,andLocked-InCosts(3of5)ValueEngineeringTerminologyCostincurrence—describeswhenaresourceisconsumed(orbenefitforgone)tomeetaspecificobjectiveLocked-incosts(designed-incosts)—coststhathavenotyetbeenincurredbutwillbeincurredinthefuturebasedondecisionsthathavealreadybeenmadeThebestopportunitytomanagecostsisbeforetheyarelockedin.ValueEngineering,CostIncurrence,andLocked-InCosts(4of5)Exhibit14.4PatternofCostIncurrenceandLocked-InCostsValueEngineering,CostIncurrence,andLocked-InCosts(5of5)Tosummarize,followingarethekeystepsinvalue-engineering:Understandcustomerrequirementsandvalue-addedandnon-value-addedcosts.Anticipatehowcostsarelockedinbeforetheyareincurred.Usecross-functionalteamstoredesignproductsandprocessestoreducecostswhilemeetingcustomerneeds.PossibleUndesirableEffectsofValueEngineeringandTargetCostingUnlessmanagedproperly,valueengineeringandtargetcostingcanhaveundesirableeffects:Employeesmayfeelfrustratediftheyfailtoattaintargets.Thecross-functionalteammayaddtoomanyfeaturesjusttoaccommodatethedifferentwishesofteammembers.Aproductmaybeindevelopmentforalongtimeastheteamrepeatedlyevaluatesalternativedesigns.Organizationalconflictsmaydevelopastheburdenofcuttingcostsfallsunequallyondifferentbusinessfunctionsinthecompany’svaluechain.AvoidingPossibleUndesirableEffectsToavoidthosepossibleundesirableeffects,target-costingeffortsshouldalwaysdothefollowing:Encourageemployeeparticipationandcelebratesmallimprovementstowardachievingthetargetcost.Focusonthecustomer.Payattentiontoschedules.Setcost-cuttingtargetsforallvalue-chainfunctionstoencourageacultureofteamworkandcooperation.Cost-PlusPricing(1of5)Insteadofusingthemarket-basedapproachforlong-runpricingdecisions,managerssometimesuseacost-basedapproach.Thegeneralformulaforsettingacost-basedsellingpriceaddsamarkupcomponenttothecostbase.Usually,itisonlyastartingpointintheprice-settingprocess.Markupissomewhatflexible,basedpartiallyoncustomersandcompetitors.Becauseamarkupisadded,cost-basedpricingisoftencalledcost-pluspricing,wheretheplusreferstothemarkupcomponent.Cost-PlusPricing(2of5)Cost-pluspricingcanbedeterminedseveralways:Chooseamarkuptoearnatargetrateofreturnoninvestment,whichisthetargetannualoperatingincomedividedbyinvestedcapital.Computethespecificamountofcapitalinvestedinaproduct,whichischallengingbecauseitrequiresdifficultandarbitraryallocationsofinvestmentsinequipmentandbuildingstoindividualproducts.Cost-PlusPricing(3of5)Becausecomputingthespecificamountofcapitalinvestedinaproductischallenging,sometimesmanagersusealternatecostbasestosetprospectivesellingprices:VariablemanufacturingcostVariablecostManufacturingcostFullcostCost-PlusPricing(4of5)CommonBusinessPracticeManymanagersusefullcostfortheircost-basedpricingdecisions:Itallowsforfullrecoveryofallcostsoftheproduct.Itallowsforpricestability.Itisasimpleapproach.Cost-PlusPricing(5of5)Thesellingpricescomputedundercost-pluspricingareprospectiveprices.Thetarget-pricingapproachreducestheneedtogobackandforthamongprospectivecost-plusprices,customerreactions,anddesignmodifications.Target-pricingfirstdeterminesproductcharacteristicsandtargetpriceonthebasisofcustomerpreferencesandexpectedcompetitorresponsesandthencomputesatargetcost.Life-CycleProductBudgetingandCostingManagerssometimesneedtoconsidertargetpricesandtargetcostsoveramultiple-yearproductlifecycle.ProductlifecyclesspanthetimefrominitialR&Dtowhencustomerserviceandsupportarenolongeroffered.Inlife-cyclebudgeting,managersestimatetherevenuesandbusinessfunctioncostsacrosstheentirevalue-chain,fromitsinitialR&Dtoitsfinalcustomerserviceandsupport.Life-cyclecostingtracksandaccumulatesbusinessfunctioncostsacrosstheentirevaluechain,fromaproduct’sinitialR&Dtoitsfinalcustomerserviceandsupport.Life-cyclebudgetingandlife-cyclecostingspanseveralyears.Life-CycleBudgetingandPricingDecisionsBudgetedlife-cyclecostsprovideusefulinformationforstrategicallyevaluatingpricingdecisions.Thesetwofeaturesofcostsmakelife-cyclebudgetingparticularlyimportant.ThedevelopmentperiodforR&Danddesignislongandcostly.ManycostsarelockedinattheR&Danddesignstages,evenifR&Danddesigncostsarethemselvessmall.ManagingEnvironmentalandSustainabilityCostsManagingenvironmentalcostsisacriticalareawheremanagersapplylife-cyclecostingandvalueengineering.Environmentalcoststhatareincurredoverseveralyearsoftheproduct’slifecycleareoftenlockedinattheproduct-andprocess-designstage.Aneworganization,theSustainabilityAccountingStandardsBoard(SASB)hasbegundefiningstandardsforenvironmental,social,andgovernance(ESG)performancefordifferentindustries.Whenmeasuredovermultipleperiods,companiesthathavehigherrelevantESGratings,havehigherfutureprofitabilityandfinancialperformance,perhapsbecauseofcu