TERM PAPER OF SEMINAR MANAGEMENT

ACCOUNTING (NISSAN MOTOR COMPANY)

LECTURER :

Riwayadi, SE., MBA., Ak., CA., CSRS., CPMA., CSRA.

ARRANGED BY :
Naurah Atika Dina
1710533024

INTERNATIONAL ACCOUNTING

ECONOMIC FACULTY
ANDALAS UNIVERSITY
2020
1. OVERVIEW OF THE COMPANY
A. Vision :
Enriching people’s lives
B. Mission :
Nissan provides unique and innovative automotive products and
services that deliver superior measurable values to all stakeholders in
alliance with Renault.
C. Company Business :
Nissan Motor Company, Ltd. (Nissan) in 1990 was the fourth

largest car manufacturer in the world. Producing more than three

million vehicles, Nissan provides approximately 10 percent of world

demand for each car and truck at the time. Nisan was supported in

1933 and considered itself to be the most globalized Japanese car

company, by producing vehicles in thirty-six factories in twenty-two

countries and promoting in one hundred and fifty countries through 390

distributors and owning more than 10,000 dealers. Japan's domestic

traveler car market is very competitive. The most important

manufacturer is Toyota with approximately forty-five domestic

markets. Nissan, which ranked second with a market of approximately

twenty-five and was followed by Honda and Mazda for another two

hundred markets. Car companies have steadily increased their variety

of merchandise since fifties, but as the years pass, clients demand

additional variations and a wider variety of models than ever before.

This shift requires additional models and variations created to meet

client demands.

Automotive Business

- NISSAN : Nissan continues its quest to optimize product development

and deliver highly innovative technology. Today, in various countries

and regions round the world, we enjoy a stellar reputation for

creating truly innovative vehicles and service programs.

 (www.nissan-global.com)

- INFINITI : The premium brand from Nissan Motor Co. Ltd., is

renowned internationally for its world-first technologies and

award-winning designs. With its highly refined style and

responsiveness, promises a driving experience with unparalleled

appeal. (www.nissan-global.com)

- DATSUN : Datsun is the third global brand of Nissan Motor Co. Ltd.,

alongside Nissan and INFINITI. Datsun represents 80 years of

accumulated Japanese car-making expertise and a crucial part of

the company’s heritage. Today, it offers personal mobility and a

worry-free ownership experience to customers in India, Indonesia,

Russia and South Africa. (www.nissan-global.com)

2. IMPLEMENTATION OF MANAGEMENT ACCOUNTING OF THE

COMPANY
During the 1990s, consumers began demanding cars that match their
lifestyles. In the face of this pressure, Nissan has chosen to systematically reduce
the number of different models. Thus, this decision reflects two additional trends.
Declining differences among consumers reduce the need to develop specific
models into a single market, and the increased costs associated with launching new
models make it difficult to make a profit.
Over the years, Nissan has also developed appropriate procedures for introducing
new products. One of the main elements of this procedure is a sophisticated target
cost system. The procedure for introducing new models is then divided into 3
stages which if taken together will last about 10 years, namely:
1. Conceptual design stage (2 years)
2. Product development stage (4 years)
3. Production stage (4 years)
In Nissan's target cost accounting system, the target price for each new model is
initially set, then the target margin is determined by a large part based on the
company's profitability goals. As a result, the target value is known because of the
difference between the target price and also the target margin.
In the conceptual design stage, it's all about the design of potential new
products. First of all, the designers identified a mixture of models expected to be sold
by Nissan for the next 10 years. This combination is explained during the vehicle
matrix based on the main market and body type. The matrix itself contains qualitative
information about each model, such as price range, target customers and their income
level, and the range of body types supported and so on. This information is retained
for current and future models and effectively describes the market position of each
model. The main purpose of this matrix is to ensure that Nissan is the specified level
of market coverage. As a final examination of the proposed model, each model will
be categorized using 3 main attributes: performance, aesthetics, and luxury. At this
stage of the product introduction process, the conceptual design is sufficiently
developed to allow a rough estimate of the number of vehicles to be sold and
therefore the costs associated with its development. As the conceptual design of the
new model develops, additional consumer analysis and financial analysis are carried
out, a useful engineering phase will be carried out to determine whether the new
model can be produced with acceptable profit.
In the product development stage, the assigned department will prepare a
detailed order sheet for the new model. This order sheet lists all the components
needed in the new model and is analyzed to see which components are likely to be
sourced internally and externally. Suppliers, both internal and external, are given an
outline of each component and their potential production volume. Suppliers are
expected to provide estimated prices and delivery times for each component. Value
engineering is used at this stage of development to calculate the allowable cost for
each component in each of the main functions of the car. To avoid having to develop
cost targets for too many components during a typical new model, engineers only set
detailed cost targets for 2 or 3 representative variations. The next phase in the product
development stage is to build two or three prototype vehicles, and the third stage is to
determine and identify the effect if a redesign occurs at the target cost, and therefore
the final target cost for the model variant is expected to be sufficient for the product
costs reported during manufacture .
 In the last of introducing the new model, it's called the The Production
Stage. Nissan features a facility called The Zama, located a few miles from
Tokyo, it's one among Nissan’s five major domestic manufacturing facilities.
The facility contained two complete stamping and assembly facilities, and also
housed a car delivery area and Nissan’s machinery design center. The Zama only
involved in producing pressed metal parts, welding them together, assembling
the body, painting the body then assembling the finished automobile.

Somehow, this production strategy fit well with Nissan’s corporate strategy
of providing customer satisfaction, top quality product but short delivery times,
and last but not least, the high functionality of the automobile itself. Although,
high product diversity at this short delivery time can achieved by using of JIT
production. Nissan system is rather complicated and quite complex to be put in
one single scheme, however, the essential idea of this cost system is still in line
with what the books told. Nissan separated the system into 3 major stage, where
actually quite an equivalent contents with people who already know of; Market
driven costing, Product-level target costing and Component-level target costing.

3. DISCUSSION

Target costing is primarily a way for profit management. Its objective is to

make sure that future products generate sufficient profits to enable the firm to
realize its future profit plans. This objective can only be achieved if products are
designed to satisfy the stress of the firm’s customers and to be manufactured at a
sufficiently low cost. Target costing systems first identify the value at which the
product must be manufactured if it is to realize its profit objective and then create
a disciplined environment to help ensure that the target cost is achieved.

Most target costing processes contain three distinct steps, market-driven

costing, product-level target costing, and component-level target costing.
Market-driven costing is employed to transmit the competitive pressure that the
firm faces in the marketplace to its product designers and suppliers. This
pressure is transmitted by subtracting the target margin of profit (the margin
required of the product if it is to enable the firm to achieve its long-term profit
objectives) from the target selling price (the price customers are willing to pay
for the product) to determine the product’s allowable cost (the cost at which the
product must be manufactured if it is to generate the target margin of profit at its
target selling price). (Cooper, 1994)

The allowable cost is about by the market, it doesn't incorporate the

capabilities of the firm or its suppliers. Setting the target cost adequate to the
allowable cost risks setting unachievable targets and thus reducing the
effectiveness of target costing. Therefore, within the product-level target costing
step, product-level target costs are set that are often allowable costs. These
product-level target costs are determined in order that they will be achieved, but
as long as the merchandise designers expend considerable effort on designing
costs out of the longer term products. The objective is to make intense but
realistic pressure on the merchandise designers to scale back costs.

To create the same pressure on the firm’s suppliers, component-level target

costing is used to focus supplier creativity on reducing the costs of the
components they supply. At the heart of component-level target costing is
establishing the worth that the firm is willing to pay for each of the externally
acquired components within the new product. Thus, component-level target
costing enables the customer to determine the selling prices of its suppliers.
These prices must be realistic and permit the suppliers to form adequate returns
if they too expend considerable efforts on designing costs out of their products.
In the common of documented target costing systems contain these three major
steps. But, the way of the implementation maybe different.After read all of the i
mplementation of management accounting in Nissan Company,

I found there are several advantages to the target cost system approach:

1. The target costing system is often referred to as a concurrent design in a team.

Team members include representatives from design, engineering, purchasing,
manufacturing, and marketing, all of whom focus on an equal goal: to deliver
products with targets, quality, and prices to specific market segments.

2. Each subgroup in the team is given a target of cost reduction that is expected
to be fulfilled to realize the target cost of the team. This approach involves not
only individual responsibility but in the overall structure of the group's goals
regarding product quality, functionality, and price.

3. Another advantage is that it reduces product development time and costs by

reducing the design changes needed. All time and cost reductions for
components can be achieved with the help of important decisions about model
design.

4. Determination of target costs is used at the time phase of the product and
process, when design choices can have a maximum impact on product costs. But
it needs to be reminded that without disciplined team approaches to product
design, an engineering group can design a production process that uses the latest
production technology without regard to its effect on cost or manufacturing
capability.

5. The target costing system at Nissan includes representatives from their

suppliers on the component planning team. The aim of the program is to gain
their expertise, strengthen their relationship with long-term contracts, negotiate
returns on the investment they make in the design and manufacture of products,
and share the development costs they might produce.

6. Most product and process design decisions are not the lowest cost designs, but
the designs that the organization has decided to survive. In addition, the system
takes the organization beyond the level of effort normally chosen in satisfying
operations and pushes planning activities toward the target cost.

7. Target costing is a more flexible way of determining profits. When assuming

the target cost is too low, it allows the target profit margin to decrease, but only
if it can adequately increase the profit margins of other product targets to offset
losses.

8. Determination of target costs can motivate manufacturing members to make

continuous improvements because there is a universal belief that there are always
several components, activities, or areas where it is possible to realize further
costs. Success seems to depend on growing appreciation and broad commitment
to the idea that there will always be opportunities to reduce costs and on
developing integrated systems to support cost reduction activities.
 Besides having some advantages of the target costing system at Nissan, I als
o tend to find a number of weaknesses of the model:

1. The system puts a considerable pressure on the design team. The design team
usually has a goal to meet the cost target, but unfortunately there is no possibility
of negotiation in setting the cost target; the product will not be launched unless
the team meets the target cost, which ultimately reflects what the customer is de
manding. Therefore, there is excessive pressure on the design team to develop and us
e tools that can help them achieve their target cost goals.

2. Being the main in the market is very tiring to realize by exploiting target pri
ces because they are very dependent on research and therefore historical informatio
n from previous variants and contestants. Imagine in a condition where the company
wants to create innovative products for the main time, then this can be a big weakne
ss because they will not do an assessment / comparison. Moreover, exploitation of tar
get prices during these conditions can stimulate a longer time to develop than by e
xploitation of customary prices.

3. Confusion in the market.

4. Usually within organizations, conflicts can occur when the pressure to reduce
target costs is too high and everyone on the team loses discipline and starts sh
owing each other. If the conditions in which senior managers push the smallest a
mount possible on the challenge of reducing strategic costs, while the chief engine
er pushes a number high enough to ensure that the target product-level costs can b
e achieved resulting in conflict.

5. Target costing can cause a shift in company motivation from product perfor
mance to product cost. Therefore, this will bring the company to focus only on red
ucing costs as much as possible without considering the effects on the marketing
and engineering standpoint. Companies will try to set aggressive target costs, and tha
t will usually violate the main rules - target costs must not be exceeded - and lose
discipline. Even worse, if the company knows target costs cannot be achieved, the
design team may give up and even try to achieve them and never effectively reduce
costs.
 4. CONCLUSION
In my opinion, Nissan's target costing system was designed and
implemented very well, but lacked the continuous improvement that was also
important in the manufacturing phase. Kaizen costing supports this kind of
action. This is an alternative to ABC and combined with Target Costing. Kaizen
costing has proven to be very helpful by Japanese manufacturers to achieve the
goal of cost reduction in the full cycle of the design-development production
cycle. Nissan could consider using this costing system to get more market
coverage and more revenue in the coming years.

And also to survive in the competitive market of motor vehicle

manufacturers in Japan, Nissan is required to provide products that have high
quality with low production costs. This means that for a product sometimes there
are some features that are not needed by consumers. Obviously eliminating this
function will reduce production costs. These things are always analyzed by
Nissan. With the target costing method, Nissan is able to reduce production costs
while maintaining the main function or quality of a product. Nissan is trying to
increase its market share in Japan and the rest of the world by always being
oriented to customer satisfaction, meaning that before innovating or improving
products, Nissan is always researching the desires of consumers at that time. So
that consumer expectations for a product to be purchased can be designed by
Nissan while still paying attention to the main functions of a product.

5. REFERENCES

https://www.nissan-global.com/EN/COMPANY/MESSAGE/VISION/

Drucker, P., 1994, Nissan Motor Company, Ltd: Target Costing System, President
and Fellows of Harvard College.

Feil, P., K.H. Yook, dan I.W. Kim, 2004, Japanese Target Costing: A Historical
Perspective, International Journal of Strategic Cost Management, Spring: 10-19.

Cooper, R., 1994b. Nissan Motor Company, Ltd., Harvard Business School Case 9-
194-040.
Monden, Y., 1995, Cost Reduction Systems. Target Costing and Kaizen Costing,
Portland, OR, Productivity Press.