Cirrus Inc., a firm manufacturing automobile parts, is currently trying to reduce costs per unit in a drive to improve profits. It uses the concept of _____ that sets cost targets in advance and requires each cost center to set specific cost reduction plans for each accounting period.

Question

Quizplus · Accepted Answer

The concept that best fits the given scenario is kaizen costing. Kaizen costing is a cost reduction technique that aims at incremental cost reductions. Under this approach, cost targets are set in advance, and each cost center is required to set specific cost reduction plans for each accounting period. Kaizen costing is especially effective in reducing costs in labor-intensive industries such as automobile parts manufacturing. Activity-based costing, contract costing, and batch costing are not suitable for the given scenario.