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Management Accounting Best Practices: A Guide for the Professional Accountant by Steven M. Bragg

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Chapter 10

Product Design Decisions

The involvement of accountants with products is usually limited to the calculation of their costs for inventory costing purposes. Though this limited recordation role is useful, the accountant should become deeply involved in both the allocation of funding to new products and the analysis of costs during the product development process. The reason for this additional work is that approximately 90 percent of the cost of a product is designed into it, and cannot thereafter be altered; consequently, the accountant can have a huge impact on a company's cost of goods sold by actively providing cost accounting information to product design teams during the development process.

The key tool used to design lower costs into products is called target costing. The accountant needs to know how target costing works, how it impacts profitability, what data is needed for proper target costing analysis, how it can be incorporated into the budgeting process, and related issues. The following table itemizes the section number in which the answers to each question posed in this chapter can be found:

Section Decision
10-1 How do I make funding decisions for research and development projects?
10-2 How does target costing work?
10-3 What is value engineering?
10-4 How does target costing impact profitability?
10-5 Are there any problems with target costing?
10-6 What is the accountant's role in a target costing environment?
10-7 What data is needed ...

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