1. Definition and Cultural Shift
While target costing focuses on reducing costs during the product’s design phase, Kaizen Costing focuses on reducing costs during the active manufacturing phase. Originating in Japan, Kaizen means “continuous improvement,” shifting the cost-control focus from maintaining standards to beating them.
2. Standard Costing vs. Kaizen Costing
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| Feature | Standard Costing Systems | Kaizen Costing Systems |
+------------------------+---------------------------------------+------------------------------------------+
| Primary Objective | Maintain current processes and match | Improve current processes continuously |
| | pre-set budget cost targets. | to reduce waste and lower costs. |
+------------------------+---------------------------------------+------------------------------------------+
| Baseline Stability | Cost standards remain fixed for a | Cost targets are adjusted downward |
| | full year or budget period. | every single month. |
+------------------------+---------------------------------------+------------------------------------------+
| Accountability Focus | Variances are evaluated by upper-level| Small, continuous cost improvements are |
| | managers and industrial engineers. | driven directly by front-line workers. |
+------------------------+---------------------------------------+------------------------------------------+
3. Mathematical Allocation of Kaizen Targets
Kaizen targets are applied as small, monthly cost-reduction rates (e.g., reducing material waste by 1% each month). The performance goal changes continuously, encouraging front-line production teams to find and eliminate minor operational inefficiencies day after day.