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Topic 4 Reading Target Costing In The Nhs (Cima) Notes

Accounting Notes > Accounting in the New Public Sector Notes

This is an extract of our Topic 4 Reading Target Costing In The Nhs (Cima) document, which we sell as part of our Accounting in the New Public Sector Notes collection written by the top tier of LSE students.

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"Target costing in the NHS: Reforming the NHS from within" (CIMA NHS Working Group, 2005)

"Target costng in the NHS: Reforming the NHS from within" (CIMA NHS Working Group, 2005) Introducton

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Payment by Results and the introduction of a national tariff have only added to existing pressure on the NHS The media is continually scrutinizing the mixed financial performance of NHS Trusts which continues despite significant increases in funding Target costing in the NHS presents an opportunity to radically improve the operational delivery of patient care Target costing originated in the Japanese manufacturing industry in the 1970s as a response to the challenges posed by consumer demand for more diversity and shorter product life cycles Establishment of targets for market price, volume and profit, from which a target production cost is derived Cost analysis is carried out to determine an actual cost and identify the extent of, and develop plans for, the cost reduction required to target cost Real strength of target costing is an overall framework for cost improvement and efficiency within which a range of different techniques for analysis and re-engineering are used CIMA's NHS Working Group focuses on developing guidance to raise the standards of financial management, specifically in areas where better approaches to management accounting can make a significant difference to performance

Background to target-costng

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A target cost is a product cost estimate derived by subtracting a desired profit margin from a competitive market price Sakurai (1989) defines target costing as a 'cost management tool for reducing the overall cost of a product over its entire life cycle with the help of the production, engineering, R&D and accounting departments' Literature reveals that target costing is not seen as a technique for cost control but a management process (Cooper and Chew, 1996)

Target costng process Achieving target costs

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A process of negotiation between different production departments and between the company and its suppliers to arrive at final target costs for the individuals components o This could be an important advantage for marketization of the NHS Sakurai (1989) - target costing as a system for reducing cost and promoting the use of costengineering tools such as those listed above

Advantages of target costng

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To reduce costs before they are locked in To control design specifications and production techniques o Tends to be oriented more towards management and engineering than accounting, and to be successful requires the use of cost engineering techniques such as value engineering (Sakurai, 1989) As an analysis which highlights other problems As a driver for cost improvement

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