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This document discusses Kaizen budgeting and costing. It defines Kaizen as continuous improvement in Japanese and explains that Kaizen budgeting integrates improvement throughout the budget period. Kaizen costing aims to continuously improve production processes to reduce costs by eliminating non-value added activities. The document provides details on how Japanese companies like Daihatsu use Kaizen budgeting and how it is similar to contribution analysis, focusing on direct costs and continuous improvement in budgeted figures.

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Rose Jean Pernito
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63 views5 pages

Summary

This document discusses Kaizen budgeting and costing. It defines Kaizen as continuous improvement in Japanese and explains that Kaizen budgeting integrates improvement throughout the budget period. Kaizen costing aims to continuously improve production processes to reduce costs by eliminating non-value added activities. The document provides details on how Japanese companies like Daihatsu use Kaizen budgeting and how it is similar to contribution analysis, focusing on direct costs and continuous improvement in budgeted figures.

Uploaded by

Rose Jean Pernito
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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SUMMARY

In the current conditions, continuous improvement is one of


the main issues faced by the managers
of organizations. The Japanese use the term kaizen to
designate continuous improvement.
Budgeting via the kaizen method explicitly integrates
improvement throughout the period budgeted in the budget
data.
Budget explanation via the kaizen method refers, on the one
hand, to budgeting for the purposes
of continuously improving the number of work hours per
product unit, and, on the other hand, to the
way it is used in cost management, or, more specifically, to
the way it is used for the purposes of reducing
costs.
Organizations are subjected to a continuous pressure in order
to reduce the cost of the products or services they trade. It is
extremely useful to understand the tasks or activities (such
as the assembly and calibration of equipment or product
distribution) that lead to the appearance of costs in order to
calculate and manage the product costs. For the purposes of
establishing the cost reduction objectives, managers start by
scanning the market in order to determine the prices that
the customers are willing to pay for certain products or
services (these prices are considered target-prices and are
fixed at a level that will enable the company to get the
desired market segment and the proposed sales volume). In
order to reach the target cost, the managers deduct from this
target price a profit margin corresponding to the operation
cycle that they expect to obtain throughout the entire
lifecycle of the product or service. Then, the managers try to
obtain the target cost by eliminating certain activities (such

as product reconditioning) and the reduction of the costs for


the execution of activities
[Horngren, Datar, Foster, 2006, p. 13]
All these work stages are applied by the managers for all the
functions of the value
chain and for the entire lifecycle of a product or service, from
the initial design until the
moment the customers no longer receive services for the
respective product.
Some authors, following the model of the Japanese kaizen
(the cost reduction of the
existing products) advocate for the continuous verification of
the standard costs (1). The
studies performed by Monden (1989), Sakurai and Huang
(1989) and Sakurai (1990)
showed that there is a trend in the Japanese auto industry
which ignores the standard cost.
There are also opinions according to which standard costs are
extensively used because they
offer information that can be used in several areas, such as:
budget elaboration, cost control
and assessment of performances.
Daihatsu perceives the kaizen as one of the six valences of
the budgeting process (in
relation to a five years budget), which comprises the
following components: [Bouquin,
2004, p. 276]:
1) the budget which defines sales, variable costs and
margins;
2) the budget for the supply with materials and raw
materials;
3) the budget for rationalizing the plant and reducing variable
costs (the essential part of
kaizen);

4) the budget for the use of the work force;


5) the investments budget;
6) the budget for the capacity costs of the enterprise and for
general expenses.
Dorina BUDUGAN*, Iuliana GEORGESCU**
"Kaizen Budgeting" is a cost reduction method that enables
companies to reduce their variable costs and gain more
efficient results.
The word Kaizen was brought to business literature by the
Japanese.
Basically, Kaizen refers to a management philosophy.
Masaaki IMAI, who
was described as the person of this management
philosophy's founder,
developed Kaizen in Japan.
Definition of the word Kaizen can be described as:
Kai = Change
Zen = Good
Kaizen = Continuous Improvement (BOZDEMR, E., 2011).
Kaizen aims to carry out a continuous improvement in a
business
process with small steps. Since the results are effected by the
processes,
Kaizen helps to improve the processes in order to improve the
results. Thus,
competitive advantage is achieved through Kaizen strategy. If
a company
aims to be a permanent actor in the business field, it is
obliged to respond to
the customers requests. Kaizen strategy brings
improvements in time, cost,
and quality. In addition, these improvements bring benefits to
the customers.

Therefore, all Kaizen activities are assumed to increase


customers
satisfaction (IMAI, M., 1999).
Kaizen Costing can be described as continuous improvements
applied
in the production phase of a product in order to establish cost
reduction.
Kaizen Costing reduces the production costs by seeking
alternative ways to
increase the efficiency of the manufacturing process used for
the products. In
most of the companies that manufacture short-lived
products, production
processes have longer lives than the products. Therefore,
greater savings can
be achieved by focusing on the processes during the
production phase of a
product rather than on the product itself (COOPER, R., 1999).
When cost reduction objectives are defined clearly, Kaizen
Costing
works effectively like Target Costing. Unlike Target Costing,
Kaizen
Costing focuses on the production processes of the product,
rather than the
design of the product. Thus, the main purpose of Kaizen
Costing is to
eliminate all kinds of non-active elements of the production
process
(COOPER, R., 1995).
Kaizen budgeting is part of Kaizen activity based
management system
and total quality control. This system is similar to a kind of
contribution
analysis based on the direct costs. In this system, the
distribution of indirect
costs is not a concern (TANAKA, Takao, 1994).

Kaizen budgeting is a budgeting approach that is based on


continuous
improvement in the budgeted figures during the budget
period
(HORNGERN, Charles T, 1997).
Kaizen budgeting activities such as plant rationalization plans
include
reductions in variable production cost estimations. Hence,
this can be seen as
the basis of Kaizen Costing activities. These plans determine
the reduction
targets in variable production costs where personnel plans
set goals for
reductions in direct and indirect labor costs (HORNGERN,
Charles T, 1997).
Selim Yuksel Pazarceviren, Prof., Cost Management
Consultant
Olcay Akcin, MBA, PhD Student
Ugur Ozsuer, MA, PhD Student

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