Capitol Trencher Corporation (CTC)builds and sells heavy equipment used for digging house foundations and similar applications. It operates in a job costing environment where machines are made to order. Average manufacturing time is 3 months, but can be as short as 1 month or as long as 6 months, depending upon the customer's specifications.
CTC's two engineers constantly seek new and better ways to manufacture the company's equipment. They also devote energy to improving the materials the company uses in its finished products. The marketing and sales department has three employees, who focus on referrals from previous clients and attend professional organizations, such as the local contractors association, to find potential customers. Each machine CTC sells has a five-year warranty, during which customers can call the engineering staff, the production staff, and/or the sales staff for assistance.
a)Using the preceding description and your own knowledge of business processes, identify one activity the company might have that would be considered value-added. Identify another activity the company might have that would be considered non-value-added.
b)A management consultant has suggested that CTC use a target costing system to improve its profitability. Is target costing appropriate for CTC? Why or why not?
c)CTC's vice president of manufacturing recently read an article about kaizen costing and has asked your opinion about its application at CTC. List and discuss one similarity and one difference between kaizen costing and target costing.
d)Suggest two specific ways the implementation of kaizen costing might affect CTC's value chain.
e)Life cycle costing is a decision-making method that considers changes in price and costs over the entire life cycle of a good or service. Consider a machine CTC recently sold to a long-time client. From the client's point of view, list one cost (other than the cost of the machine)associated with the machine's life cycle. List one life cycle cost from CTC's perspective.

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The Answer of Capitol Trencher Corporation (CTC)builds and sells heavy equipment used for digging house foundations and similar applications. It operates in a job costing environment where machines are made to order. Average manufacturing time is 3 months, but can be as short as 1 month or as long as 6 months, depending upon the customer's specifications.
CTC's two engineers constantly seek new and better ways to manufacture the company's equipment. They also devote energy to improving the materials the company uses in its finished products. The marketing and sales department has three employees, who focus on referrals from previous clients and attend professional organizations, such as the local contractors association, to find potential customers. Each machine CTC sells has a five-year warranty, during which customers can call the engineering staff, the production staff, and/or the sales staff for assistance.
a)Using the preceding description and your own knowledge of business processes, identify one activity the company might have that would be considered value-added. Identify another activity the company might have that would be considered non-value-added.
b)A management consultant has suggested that CTC use a target costing system to improve its profitability. Is target costing appropriate for CTC? Why or why not?
c)CTC's vice president of manufacturing recently read an article about kaizen costing and has asked your opinion about its application at CTC. List and discuss one similarity and one difference between kaizen costing and target costing.
d)Suggest two specific ways the implementation of kaizen costing might affect CTC's value chain.
e)Life cycle costing is a decision-making method that considers changes in price and costs over the entire life cycle of a good or service. Consider a machine CTC recently sold to a long-time client. From the client's point of view, list one cost (other than the cost of the machine)associated with the machine's life cycle. List one life cycle cost from CTC's perspective.

Capitol Trencher Corporation (CTC)builds and Sells Heavy Equipment Used for Digging