Nissan Motor Company Ltd Target Costing System Case Solution

1. Nissan was an important name in the international automobile market, and it introduced an extensive range of products in the market. It was also a highly globalized company with operations in various parts of the world. There are two important stages in the target costing system of Nissan: the conceptual design stage and the product development stage. In the conceptual design stage, a conceptual design of the models was developed that was to be sold in the future, and the desired level of market coverage was ascertained. It was in order to ensure that a particular model was able to generate a positive contribution over its life. At the product development stage, a detailed order framework was developed for different components related to a model. Arrangements were made for trial production of vehicles, and costs were determined at various stages of production, in order to determine the final target cost. The target costing system in Nissan is quite different from the standard version of the costing system. It is important to look at the advantages and disadvantages of the target costing system used by Nissan.

Advantages 

The target costing system of Nissan is implemented in a highly teamwork-oriented environment. A cross-functional aspect is an important part of the organization, and all the relevant functions like engineering, purchasing, accounting, marketing, and other functions worked in a coordinated way so as to ensure that appropriate cost estimates are developed based on suitable insights from various departments involved in developing car model estimates. Another advantage is that responsibilities are allocated to each department within the overall group structure of the organization, so that the important criteria of performance, aesthetics, and design are fulfilled. This also makes sure that suitable decisions are made concerning important criteria, and which is important for estimating the right financial figures.

The disciplined team approach of the company also ensures that relevant automobile technologies are used in an effective manner, so that overall costs can be curtailed. No one is oblivious to the fact that design choices can have a great impact on the cost of the product. Nissan has developed a flexible system of determining the financial gains from the sale of different models. And in order to maintain the group profit, the target margin is manipulated to reach the desired level of cost for a particular function. Furthermore, the views of suppliers are also taken into account when target costing is done for different models. As the company maintains a distinction between its direct and indirect expenses, it becomes quite important for it to keep track of them, in order to manage the overall cost of the company. Suppliers’ expertise can be used to negotiate better deals on various components of manufacturing. 

Perhaps the most important advantage of the target costing system is that it brought about continuous improvement in the cost structure of the company; at the same time, the company can take initiatives to manage the quality and functionality of the vehicles that are being produced. This can make other members of the department motivated, in order to achieve their respective goals, as the target costing system helps in developing an environment that creates a win-win situation for all the relevant stakeholders in the organization.