Target Costing Process in Mercedes-Benz

This assignment delves into the target costing process employed by Mercedes-Benz, highlighting the importance of suppliers and the accounting department in achieving cost targets. It also discusses the use of Just-In-Time (JIT) production systems to reduce warehousing costs and improve financial performance. However, the assignment notes that organizational barriers such as willingness to share data with suppliers, treating suppliers as adversaries, and government regulations affecting information exchange can pose challenges to the target costing system.

Running head: COST ACCOUNTING
Cost Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Answer to 1:...............................................................................................................................2
Answer to 2:...............................................................................................................................2
Answer to 3:...............................................................................................................................3
Answer to 4:...............................................................................................................................3
Answer to 5:...............................................................................................................................4
Answer to 6:...............................................................................................................................4
Answer to 7:...............................................................................................................................5
Answer to 8:...............................................................................................................................5
Reference and Bibliography:......................................................................................................7

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Answer to 1:
Mercedes-Benz AAV Face lot of competition from different companies and
competitors among which is Japanese company Lexus. This company has relatively captured
the market by providing high quality cars at reasonable prices, as current customers are
demanding more than the money paid for purchase. Mercedes-Benz has never lost money due
to the adverse cost calculations system, where high quality materials used to design and
manufacture cars. This made the cars expensive, while the demand exceeded supply.
However, the current scenario indicates that using the same old method would not be
beneficial for the company (Patassini, 2017). Therefore, using product innovation, and cost
competition could eventually allow Mercedes-Benz to thrive in the competitive market.
Answer to 2:
Previously Mercedes Benz used an autonomous system of Management, where the
primary focus was only quality and limited-edition cars. this style of Management became
obsolete during the globalization and continuous market penetration by different car
companies. The management has used adequate strategy which are different from traditional
ones. The major steps taken by Mercedes Benz is introducing new product now and then,
partying with the suppliers, emphasizing on Cost control, production and management
players, disallowing complex system and formation of Lead time concept (Schaltegger &
Zvezdov, 2015). Traditionally Mercedes would not follow any of the above-mentioned
strategies, as the sole focus was to produce limited edition cars with high quality. This paved
the way for other car manufacturing companies, who were able to provide more options to the
customers.

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Answer to 3:
The above figure mainly helps in depicting the coopers Cost quality functionality
chart, which relatively states the factors and components allowing the company to compete in
the market. The company is not producing the highly expensive automobiles, and sport utility
vehicles. The company that every focused in the luxury section of the automobile industry,
where prices, quality, and functionality are at upper range of zone. The company strategically
places itself towards luxury and of the automobile industry, where consumers with high end
luxury needs in their car are satisfied. This maintenance of upper range zone has allowed
Mercedes Benz to create an adequate brand name which defines luxury at its best (Tang, Luo
& Liu, 2016).
Answer to 4:
Adequate introduction of new product has been made by Mercedes Benz, where it is
providing cars from different classes such as A-Class, C-Class, SKLK, E-Class, and M-Class.
These cars are designed as New sports cars and off-road vehicles differentiating in different
classes. The target costing model needs to conducted by Mercedes-Benz before launching the

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product, as selling price, margins, target cost, customer focus, compatible products, and
potential competition in the market needs to be evaluated. Moreover, analysis on existing
competitive vehicles needs to be conducted for identifying the competitiveness of the product
(Schmidt, Gotze & Sygulla, 2015). Therefore, by using long and profitability, cost of capital
entire product mix, and sales volume by class adequate net present value of the current
production could be evaluated. this would help the management take adequate decision
regarding expenses and sales price.
Answer to 5:
The development of importance index eventually allows the managers in making cost
reduction decisions. this could eventually help in reducing the actual expenses of the
organization while improving its profitability. the overall importance index cat be process in
five different steps such as consumer importance category ranking, target cost percentage by
function group, category function group matrix. importance index and target cost index. these
evaluations could eventually help in detecting the actual cost that could be exempted buy
Mercedes Benz by producing the cars. this would eventually reduce the actual car price and
improve competitiveness of the organization in the market (Bekcioglu et al., 2016). With the
help of Data Collection Mercedes-Benz could gather all the relevant information for the
importance index and detect the opportunities of cost reduction.
Answer to 6:
Mercedes Benz could use appropriate approaches for the cost reduction process and
achieve target cost, where the use of adequate supply chain management and value
engineering process could help in reducing cost and improve profitability of the organization.
However, the Value Engineering method is much more appropriate for Mercedes Benz, as the
engineers would be aware of the current expenses incurred in its production. This would

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eventually help in achieving cost reductions and improve various components of the
organization. However, the approach of across the board cut is also good, as it might reduce
the compensation that is being provided to the board of Mercedes Benz. This measure would
not last for long, while using the Value Engineering method the engineers would know all
about the cost and can reduce the extra expenses incurred in production (Bouwens, 2017).
Answer to 7:
Supplies are considered one of the major factors in target costing process, as the
process and help in developing an adequate system for Mercedes Benz. Suppliers eventually
help in designing and developing partner of Mercedes Benz from the very start. This allowed
the suppliers to contribute maximum towards cost targets and develop of crucial element in
the success of AVV. Moreover, the JIT production system is used by the suppliers, which
helps in reducing the warehousing cost and improve financial performance of the
organization (Mercedes-benz.com, 2018). The use of small warehouses and effective system
of production would eventually allow Mercedes-Benz to reduce this cost and improve the
target costing process
Answer to 8:
The role of accounting department is essential for the completion of target costing
process, as it helps in detecting the avoidable expenses incurred by the organization. The
accounts department enable Mercedes-Benz to identify all the relevant expenses that is
conducted on the production process. In addition, it helps in cost control unidentified actual
vs target for the organization. The account department can help in both development stage
and production stage to identify all the relevant problems challenges that might incur during
the implementation of target costing process (Jasinski, Meredith & Kirwan, 2015).
Organizational barriers that might increase challenge for the target costing system are

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Willingness to share data with supplies, Suppliers treated as adversary and Government
regulations affecting exchange information.

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Reference and Bibliography:
Bekçioğlu, S., Kaderli, Y., Köroğlu, Ç., & Sezer, D. (2016). A New Cost Accounting
Concept by the End of 20th Century: Strategic Cost Management. Accounting &
Financial History Research Journal, (10).
Bouwens, J. (2017). Understanding investment decisions: the role of cost accounting.
Ellul, A., Jotikasthira, C., Lundblad, C. T., & Wang, Y. (2015). Is historical cost accounting a
panacea? Market stress, incentive distortions, and gains trading. The Journal of
Finance, 70(6), 2489-2538.
Jasinski, D., Meredith, J., & Kirwan, K. (2015). A comprehensive review of full cost
accounting methods and their applicability to the automotive industry. Journal of
cleaner production, 108, 1123-1139.
Mercedes-benz.com. (2018). Mercedes-benz.co.in. Retrieved 15 March 2018, from
https://www.mercedes-benz.com/?
csref_sem_brand_always_on&gclid=EAIaIQobChMIsPjcv7Dt2QIVkoaPCh2LKQH2
EAAYASAAEgKG0vD_BwE
Patassini, D. (2017). Beyond benefit cost analysis: accounting for non-market values in
planning evaluation. Routledge.
Schaltegger, S., & Zvezdov, D. (2015). Expanding material flow cost accounting.
Framework, review and potentials. Journal of Cleaner Production, 108, 1333-1341.
Schmidt, A., Götze, U., & Sygulla, R. (2015). Extending the scope of Material Flow Cost
Accounting–methodical refinements and use case. Journal of Cleaner
Production, 108, 1320-1332.

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Tang, T. Q., Luo, X. F., & Liu, K. (2016). Impacts of the driver’s bounded rationality on the
traffic running cost under the car-following model. Physica A: Statistical Mechanics
and its Applications, 457, 316-321.
Wan, Y. K., Ng, R. T., Ng, D. K., & Tan, R. R. (2015). Material flow cost accounting
(MFCA)–based approach for prioritisation of waste recovery. Journal of Cleaner
Production, 107, 602-614.