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2012 Fifth International Conference on Business Intelligence and Financial Engineering

A Study of the Cost Control Problem in Refrigerator Product Design Stage

Qingmin Yu
Department of Economic and Management
Shunde Polytechnic
Shunde, China
e-mail: qingmin_yu1@sina.com
AbstractIn response to the economic recession in developed
countries and the rising of domestic raw material prices and the
economic downturn, refrigerator manufacturing companies must
choose the road of cost control in order to reap the survival and
development. However, the product design stage is the key to cost
control of the refrigerator. In this paper, using the target costing,
value engineering analysis to the cost control problems in the
refrigerator design stage, the author proposes some improvements
in cost control measures and suggestions.

planning, development planning stage, design stage and


production stage.The major cost of the refrigerator product
cost is the cost of raw materials. Once the product design
identified and putted into production, product performance
and main product costs are basically determined , and the
unreasonal basic inherent product performance and
unreasonable economic aspects of the design is irreversible
by taking cost control measures in the production. Therefore,
in order to reduce the cost of the product of the refrigerator,
we must strengthen cost control of the refrigerator in the
product design stage.

Keywords- product design; cost control; target costing; value


engineering analysis

III.
I.

INTRODUCTION

Recalling 2011, the increasing domestic raw material


prices and labor wage led to appliance manufacturers facing
serious pressure of rising costs, and RMB appreciation made
exports of home appliances marked to decline in profits. All
the above factors have resulted in this highly competitive
appliance manufacturers profits shrinking further. Outlook
2012, by the EU and the U.S. debt crisis, the developed
economies is bound to a new round of economic recession
and the domestic real estate market will see a soft landing.
Closely related to the real estate industry, appliance
manufacturers demand will weaken. Severe economic form
at home and abroad, the Chinese appliance maker, to survive
and develop in the fierce market competition, is bound to
choose the road of cost control.
II.

A. Target cost management method


Target cost developed as cost control terms during a
given period in order to ensure the realization of the target
profit. There are another two terms related to the target cost ,
such as: target price, target profit. the relationship between
the formula is expressed as:
Target cost = Target Price - Target Profit
The target cost management is the overall management
of all the business activities of the enterprise to achieve a
target profit based on the target cost.The biggest feature of
the target cost management is people-centered management,
it will be business overall cost control target layer by layer
decomposition to each employee, by taking the appropriate
incentives and disincentives to mobilize the full participation
of cost control, positively thus effectively.

DEFINITION OF COST CONTROL AND ROLE OF PRECOST CONTROL

The so-called cost control, established according to the


cost of a certain period of pre-established management
objectives, within its mandate, is a series of precaution and
coordination methods to different factors and conditions
during the main consuming in production occurred in the
past and the cost control process. Cost control include things
in pre-control, in control and after control. Refrigerator
manufacturing enterprises are often only concerned with the
cost of the refrigerator manufacturing process control, as
well as comparative analysis of post-costing results with
budget, while ignoring the refrigerator design and
optimization of pre-control is the key to cost control.
Refrigerator product design stage is the key of the
refrigerator manufacturing cost control and focus.
Refrigerator design consists of four phases:Stage of product
978-0-7695-4750-3/12 $26.00 2012 IEEE
DOI 10.1109/BIFE.2012.58

COST CONTROL METHODS USED

There are two methods of cost control in refrigerator


product design stage, a target cost management method and
value engineering analysis method.

B. Value engineering analysis method


The so-called value engineering, refers to the functional
analysis of the target to achieve the necessary functionality
of the products or services to the lowest total cost, reliable
products or services through the collective wisdom and
organized activities, thereby enhancing the value of the
product or service.The main idea of the value engineering is
to improve the value of the object through the function of
the selected object of study and cost analysis, using the
formula can be expressed as:
V=F/C
Of which:
V (value) is a function of the value of coefficient;
238

members
are staff from the purchasing department,
production department, quality department and the ministry
of finance. The five departments are a parallel relationship,
and they direct grant general manager of command. Such
organizations makes the project team members consider only
the interests of their own departments and conflict when they
encounter the problem of cost control. For the staff of quality
department, the concept of cost control is relatively weak,
they pursuit absolute quality, regardless of cost and hope to
use the best raw materials,contrary to cost control.Production
departments always want everything to facilitate the
production, all exactly the same model and style does not
change, because if too many models and styles change easily
lead to a production error, then give production trouble. For
purchasing department, the annual procurement need to be
frugal of raw materials. In order to achieve the objectives of
the department , purchasing department always gives the cost
of materials containing water in new product development,
which will result in cost control budget data high to the
actual cost. In addition, the main assessment index of the
development of staff is as following: development schedule,
and performance testing of the refrigerator, and energy
demand. Although there are the indicators of cost control,
they are not a major assessment indicators, when cost
control targets are not reached, the punishment is not
enough, which has led to cost control in place.

F (function) is the functional significance of coefficient;


C (cost) is the cost coefficient.
Value engineering is the scientific management
methods, it is a management philosophy, it is the
combination of technical and economic relationship of the
product's features and cost, through program innovation and
strive at the lowest cost to obtain the necessary functions.
IV.

COST CONTROL PROBLEMS IN XY


REFRIGERATOR COMPANY

Below the XY refrigerator the product design stage cost


control problem as an example, we use the target cost
management method and value engineering analysis method
of the company to strengthen cost control suggestions and
methods.
A. Insufficiently sophisticated production cost budget, and
the target cost breakdown was not in place
Refrigerator production costs include raw material costs,
labor costs, and depreciation of machinery and equipment
costs and other manufacturing costs. According to the
importance of the principle or the 2:8 principles, the cost of
raw materials accounted for the major part of the refrigerator
product cost.The XY refrigerator company was insufficiently
sophisticated in the budget process of the raw material costs.
On the popose of the raw material cost accounting, we must
decomposed refrigerator parts at first. A small refrigerator
can be decomposed hundreds of thousands of parts and many
parts also need to open the corresponding mold, yet opening
mold costs and the corresponding need to spend some of the
supporting material which are not composed in the bugets.
On the other hand, the XY Company in the process of cost
control didn't target cost decomposition in place, so there
was no clear responsibility of every employee need to do to
cost control. When the cost under control, the manager
couldnt find the person responsible to improve cost control.

V. COST CONTROL METHODS IN XY


REFRIGERATOR PRODUCT DESIGN PHASE
A. The use of target costing method for product design
phase cost control
The reasonable target cost planning process of the XY
refrigerator company is as follows. Firstly, we should meet
the requirements of the market and customer performance,
quality and price of the refrigerator to start the development
of market-driven cost planning; Secondly, according to
market research, we make competitive cost of the
refrigerator product-level target cost planning; Finally,
because refrigerator product-level target cost is determined
by the cost of the various parts of the refrigerator,we should
design component-level target cost planning (flow chart
shown in Figure 1). So the cost control pressure of
refrigerators company transmits to the parts suppliers.
Procurement staff and suppliers communicate with the XY
refrigerator company to reach the target cost by usually
using the methods of a number of quotations and bid
comparison. For the successful supplier, XY will give some
encouragement. In the product development process of the
refrigerator, suppliers continue to meet the need to the
refrigerator company, and they also go as soon as possible
into the product design so that the entire supply chain to
remain flexible and the cost of the product design stage to a
minimum.

B. R&D personnel focused on the function to ignore the


cost of the product
R&D personnel in terms of ideology didn't place enough
emphasis on cost management, comparatively they paid
more attention to product features, product performance and
aesthetics. In the actual design jobs, R&D did not pay more
attention on cost control management, and they believed that
the developer's job is to develop a good product, regardless
of cost. When buying a refrigerator products at the consumer
market, the consumer not only considered that the
refrigerator product had good performance and appearance,
but also taken more concern about the price of the product.
In the refrigerator for almost the same performance and
appearance at different price points, the lower the price of
the refrigerator, the more consumers would like to buy.
C. Organization of the design team, reward and
punishment system design was unreasonable
Xy refrigerator company in the development of new
products will set up a project team, the main team members
come from refrigerator development department, other

239

Figure 1. Target cost planning flow chart

Through the calculation of the above table shows, we


conclude that the shell, inner shell and the transparent tape of
value of coefficient are less than 1, indicating that cost more
to accomplish its function cost, so we should reduce the cost
of the object. We assume that we estimate the target cost of
the box lower than the actual cost RMB 26 yuan by the
target costing methods, and the total cost of the box target is
RMB 280, then we could break down the total target cost to
various features by pressing the function coefficient, so the
various features of the target cost formed, and we will
feature existing cost and target cost reduction , drawing the
parts need to reduce the amount of the cost. By the above
calculation,we learn that in order to achieve the box to
reduce the cost of 26 yuan target, shell, inner shell need to
reduce costs 38 yuan and 16 yuan, and transparent tape need
to reduce 1 yuan cost.

Though the target cost management process, the target


cost of the XY refrigerator design is refined down to the
level of the main components of the target cost, which need
to be done by the design team members. R&D personnel will
take more attention on cost control of refrigerator parts and
raw materials, procedures and loops. At this point, you
would target assigned cost control tasks to specific people in
order to find the persons responsible for cost control which
aspects of a problem.To make the target cost management
smooth and effective operation, we need to establish the
appropriate incentives and disincentives, giving praise for
greatly reduced the cost of the product R&D personnel and
giving due punishment to cost control adverse developers.
B. The use of value engineering product in design phase
cost control
The use of value engineering analysis of the value of the
product include two aspects: Functional analysis and cost
analysis. Functional analysis refers that we give an abstract
and concise qualitative description of refrigerator parts
function, which also be classified and systematized and
decided each of the components function scores compared
with the total score, calculated each a function of the
coefficient FThe cost analysis reffers that we predict the
cost of each of the features required as the projected costs,
which cost and the ratio of the total cost is the cost
coefficient C, and accordingly find the value of coefficient V
= F / C. For value coefficient less than 1 parts is the focus of
cost control, which means we cost too much to implement
this feature, and we should take the appropriate method to
reduce the cost of the function; For value greater than 1
parts, it means that lower cost-consuming to achieve
function, and we do not need to further reduce costs, and
even the quality of the components can be appropriately
increased cost.
The following are the refrigerator cabinet parts analyzed
as an example:
The case parts consists of five parts, they are the inner
shell, shell, insulation layer, process and transparent tape.
The value of coefficient and reduce the cost of the amount of
the lower shown in Table 1,
TABLE I.

V AND THE AMOUNT OF REDUCING THE COST

Shell

0.40

150

0.49

0.82

Press the
F
distributi
on of the
target
cost
112

Inner shell
insulation
layer
process
transparent
tape
total

0.30

100

0.33

0.92

84

16

0.25

50

0.16

1.53

70

-20

0.05

0.02

3.06

14

-9

0.00

0.00

0.00

1.00

306

1.00

1.00

280

26

Part Name

C. Rational design of the development team organizational


structure
The organizational structure is the division of labor,
coordination, communication processes and the formal
authority of the guiding organizational behavior mode. The
four elements of organizational structure include: Range of
management,
centralization,
formalization,
and
departmentalization. Currently XY refrigerator company's
organizational structure is characterized by the flat type, the
separation of powers. The refrigerators development
department, quality department, purchasing department,
production department and other departments are granted
directly to the command of general manager, personnel
organization refrigerator development teams drawn from
various departments in product development, which is
conducive to staff from various departments in the fridge
development have different ideas, but the designers of the
different departments have their own leader, so a design
should be decised by a lot of leaders, leading to the design
can not be quickly determined, repeated changes, and
repeatedly revised, which not only reducing development
efficiency, affecting the development cycle, but also the
enthusiasm and vitality of the developer reduced. Designing
the organizational structure must be unified leadership of
staff from various departments that help to improve work
efficiency, and effective cost control. Based on the above
thinking, it can be considered appropriate to enhance the
status of the development departments throughout the
company. To adjust the organizational structure of
companies in various sectors, as shown in Figure 2. We
should
design
the
refrigerator
Development
Department(equivalent to assistant level department) under
the general manager, while the purchasing department,
production department, quality department, finance
department and other functional departments directly granted
general manager command. In the formation of a
development team led by the refrigerator Development
Department (a refrigerator development team based
development chief, from the refrigerator Development
Department), and joint purchasing department, production
department, quality department, finance department,

Current
cost

the
amount
of
reduing
cost
38

240

composed of the development team, development team.


This organizational structure design conducive to
centralization, and be more efficient to the development of
decision-making.

Figure 2. The organizational structure of the XY refrigerator company

REFERENCES.
[1]

General
manager

[2]
Development
dept.
Purchasing
dept.

Production
dept.

[3]
Quality dept.

[4]

Finance dept.

241

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