Product Life Cycle and Cost Management Quiz

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Questions and Answers

What is the relationship described by the equation Target Price - Target Margin?

Target Revenue

Target Investment

Target Cost (correct)

Target Profit

During which stage is functional analysis particularly useful?

Marketing phase

Post-launch stage

Pre-introductory stage (correct)

During production

What percentage of the life cycle costs are typically committed during the development period?

90-100 percent

80-90 percent (correct)

50-60 percent

70-80 percent

Which approach allows for influence over the cost structure during development?

Simultaneous approach Signup and view all the answers

What is the foundational concept that encompasses the analysis of costs throughout the product's lifecycle?

Life cycle costing Signup and view all the answers

Which step involves identifying competitors and analyzing their products?

Step 4: Competition Benchmarking Signup and view all the answers

What is a customer requirement that reflects performance?

It must hold my license plate Signup and view all the answers

In which step are customer requirements placed into a House of Quality Chart?

Step 3: Prioritize Customer Requirements Signup and view all the answers

What aspect is analyzed during the competition benchmarking process?

Competitor products against customer requirements Signup and view all the answers

Which engineering specification might be used to ensure a bumper resists dents?

Material yield strength Signup and view all the answers

What is the first step in developing target prices and target costs?

Develop a product that satisfies the needs of potential customers Signup and view all the answers

What is the target cost calculated based on a target price of $19,900 and a target margin of 16%?

$16,716 Signup and view all the answers

What does activity sharing in activity management typically lead to?

Economy of scale Signup and view all the answers

What should be done if the total cost exceeds the target cost during development?

Engage in value engineering techniques Signup and view all the answers

In what context is life cycle analysis most relevant?

For analyzing the duration of a product's market presence Signup and view all the answers

What is the principal purpose of a functional family tree?

To represent the functions of a product or service Signup and view all the answers

Which value element is primarily concerned with the buyer's perception of worth?

Exchange Value Signup and view all the answers

Which question is NOT part of the five identified by Miles for handling a problem in the Value Management process?

How can we improve it? Signup and view all the answers

In the equation for Value, which of the following correctly represents the components used?

Value = Esteem * Exchange * Utility Signup and view all the answers

What is the first step in the Job Plan within the Value Management process?

Information and translation into function terms Signup and view all the answers

Which of the following best describes 'Utility Value'?

The primary needs addressed in a product's design Signup and view all the answers

Which step in the Job Plan involves evaluating generated ideas using performance guidelines?

Planning (or Analysis) Signup and view all the answers

In the context of Value Management, what does 'Esteem Value' refer to?

The desire to own a product for extra value Signup and view all the answers

What distinguishes a function from an action in function analysis?

A function is the result desired by the customer. Signup and view all the answers

Which verb is considered more effective when describing functions?

Approve Signup and view all the answers

What is the primary purpose of measurable nouns in function analysis?

To make it easier to quantify functions. Signup and view all the answers

What is a basic function according to the definitions provided?

The primary reason for the existence of the product. Signup and view all the answers

Which of the following is an example of a secondary function?

A printer's ability to produce color documents. Signup and view all the answers

What kind of verbs should be avoided when describing functions?

Verbs ending in '-ize' or passive verbs. Signup and view all the answers

How does function analysis improve a product's value?

By manipulating its functions and separating intent from description. Signup and view all the answers

Why is distinguishing between basic and secondary functions essential?

It ensures a product meets customer expectations. Signup and view all the answers

What is the primary goal of Value Management?

To take deliberate action to improve cost effectiveness Signup and view all the answers

Which of the following statements best defines the relationship between function and value in Value Management?

Value equals function divided by cost or price Signup and view all the answers

Who initiated the concept of Value Management during World War II?

L.D. Miles, an electrical engineer Signup and view all the answers

Which component is NOT a part of Value Management?

Market Penetration Strategy Signup and view all the answers

What does the term 'improving value' refer to in Value Management?

Enhancing the buyer's perception of worth and reducing production cost Signup and view all the answers

Which of the following describes a key aspect of Value Management's approach?

Incorporating organizational identity and accountability Signup and view all the answers

What is the significance of L.D. Miles' work in the context of Value Management?

It initiated the focus on unique properties of materials Signup and view all the answers

Which aspect is included in the definition of cost effectiveness under Value Management?

Avoiding costs, increasing sales, and improving profits Signup and view all the answers

Study Notes

Course Information

Course Title: Strategic Management Accounting
Course Code: JM1R24
Lesson: 3 + 4
Professor: Dr Jan Alpenberg
Date: 9/10/2024

Today's Agenda

Value management
Target costing
Value engineering
QFD-matrix
Customer value attribute

Value Management (VM)

VM is more than a tool for reducing product cost
It's a set of disciplines to solve management issues and create a competitive advantage
Value is a fair return or equivalent for goods, services or money exchanged
VM is a marketing term; the price assigned to goods/services to attract customers and profit from sales
"Improving value" refers to improvements that increase buyer perceived worth, reducing production cost

History of VM

Began during World War II, General Electric (GE) faced difficulty sourcing materials for war equipment
Electrical engineer L.D. Miles assigned to find material substitutes
He found that material properties could be used to enhance products post design modification

Value Management Components

Value Management, the method
Value Criteria
Value Analysis, concerning the product
Value Engineering, concerning the process

Objective of VM

To take deliberate action to improve cost effectiveness
Includes education, training, planning, organizational identity and accountability
Involves cost reduction, avoiding cost, increasing sales and improving profits

Relationship Between Function and Value

Value = Function / Cost or Function / Price
Cornerstone of VM
Function is the intent or purpose of a system, product or process operating normally

Functional Family Tree

A logical diagram of a product or service's functions
Shows functions, not individual parts
Helps determine product success in the market

Functions

Each function defined in terms of verb and noun
Matrix useful with part number, name of part, transitive verb, noun and cost

Principal Value Elements in VM Studies

Esteem Value (Want): Buyer's desire to own for the sake of ownership
Exchange Value (Worth): Describes the buyer's perception, not the seller's
Utility Value (Need): The primary value element design engineers must address

Value Relationship

Value = Esteem * Exchange * Utility / Cost

Good and Poor Value Options

Good value options show a positive relationship between cost and function
Poor value options show an inverse relationship between cost and function

Value Management and the Problem

Begins with identifying problems needing resolution
Miles' five questions:
- What is it?
- What does it do?
- What does it cost?
- What else will do the job?
- What does that cost?
Process called Job Plan

The Job Plan

Key to the VM method
Step 1: Information/Translation into function terms
Step 2: Speculation - developing ideas to achieve functions
Step 3: Planning (or Analysis) - evaluating ideas using guidelines & requirements to sort for "BEST" ideas
Step 4: Execution - clustering selected ideas, evaluating scenarios
Step 5: Reporting - presenting team proposals to management board

Function Analysis

Function is the end result desired by the customer, not the action.
Function analysis separates the intent or purpose of something from its description to improve value through function manipulation
Examples of function descriptions include:
- A spring stores energy, not moves parts
- A screwdriver transmits torque, not turns screws
- An oil filter traps particles, not cleans oil

Describing Functions

Use active verbs when describing functions
Verb describes action, noun defines the object of action
Avoid verbs like "provide," "review," "attend", and those ending in " -ize"

Measurable Nouns

Measurable nouns are easier to determine when the study is a hardware example
Examples include weight, force, load, heat, light, radiation, current, flow and energy

Defining and Classifying Functions

Defined as "an intent or purpose that a product or service is expected to perform"
Words are "intent" and "expected" to define the service use
Miles classified and defined functions to assist in separating functions from design descriptions
Functions analyzed to determine their contribution to the value equation

Two Functions

Basic function: the primary reason for a product's/service's existence
Secondary function: carry out basic functions, support functions & features

Rules Governing Basic Functions

Once defined, a basic function cannot change
Cost to satisfy a basic function is usually less than 5% of total cost
Cannot sell basic functions alone but supporting/secondary functions must satisfy basic function first
Loss of basic functions results in loss of market value

Illustration - Functions of a Pencil

Table illustrating pencil functions (basic vs supporting)

Your Own Example

Template for creating your own example

Function Cost Matrix

Table showing function costs for different components

Function Analysis System Technique (FAST)

A powerful analysis that allows people from different backgrounds to interact
Translates management goals/objectives into action using two key questions:
- How?
- Why?

Function Logic

Diagram highlighting how and why components of a function work

Illustration FAST

Diagram illustrating FAST to evaluate "Make Mark" and "Contrast Color" in a house of quality

Value Analysis- An Example

Table to analyze value-added vs non-value-added activities

Target Costing and Value Engineering

Different pricing methods: market-based pricing, cost-based pricing, and value-based pricing

Market-Based Pricing

Pricing based on competitors and customer wants
Estimated price potential customers will pay
Factors in perceived value and how competitors price

Cost-Based Pricing (Cost-Plus)

Pricing that covers costs and profits, considering profit margins and demand.
Prices fluctuate based on supply and demand.

Value-Based Pricing

Pricing based on perceived value of product/service.
Customers assess attributes and functions for importances.
Important attributes influence the pricing level

Target Costing

Aims to reduce the overall product/service cost by efficiently designing products and cost planning
Does not focus on daily management
Three components:
- Target price: market price
- Target margin: desired margin
- Target cost: difference between target price and target margin

Target Costing (Breakdown)

Target cost broken down to produce
Functional analysis used on functions and costs
Useful during the pre-introductory stage of the life cycle

Target Costing -Key Ideas

Price led costing
Customer driven costing
Cross-functional teams
Life cycle costing
Value chain is the foundation

Committed versus Incurred Costs

Diagram illustrating committed and incurred costs throughout a product/service's life cycle
Committed Costs (80-90%): During development (research, design, testing and target costing)
Incurred Costs: During production, sales and services, logistics
Best time to influence the cost structure is during development (Committed Costs)
Different engineering views (linear vs simultaneous approach)

Analyzing and Managing Activities

Activity reduction (reduce time/effort)
Activity elimination (eliminate entirely)
Activity selection (select lowest cost alternative)
Activity sharing (economy of scale)

Target Costing (Example)

Calculation example of target cost

Target Costing in TD-ABC

Example of calculating target cost using TD-ABC

Five Steps in Developing Target Prices and Target Costs

Develop product to satisfy potential customers
Set a target price and target operating income
Derive a target cost per unit
Perform cost analysis for cost reduction
Perform value engineering to achieve the target cost

Life Cycle Analysis

Product/service life cycle defines analysis time period
Two aspects: Market Life Cycle and Cost Life Cycle

Analyzing the Cost Life Cycle

Diagram presenting cost changes at different stages of the product/service life cycle (research, development, production, marketing)

The Market Life Cycle

Stages of a product/service market life cycle: pre-introductory, introduction, growth, maturity and decline stages