We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Kaizen Costing?

By Lakshmi Sandhana
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Kaizen costing is a cost-reduction system that is applied to a product in production. It comes from the combination of the Japanese characters ‘kai’ and ‘zen’ which mean ‘change’ and ‘good,’ respectively. The word ‘Kaizen’ translates to ‘continuous improvement’ or ‘change for the better’ and aims to improve productivity by making gradual changes to the entire manufacturing process. Some of the cost-reduction strategies employed involve producing cheaper re-designs, eliminating waste and reducing process costs. Ensuring quality control, using more efficient equipment, utilizing new technological advances and standardizing work are additional elements.

To understand Kaizen costing, one first needs to grasp standard costing methodology. The typical standard costing approach works by designing a product first, and computing costs by taking into account material, labor and overhead. The resulting figure is set as the product cost. The standard cost is set and revised on a yearly basis. Cost deviation analysis involves checking to see whether the projected cost estimates tally with the final figures. Manufacturing procedures are assumed to be static.

In contrast, Kaizen costing is based around improving the manufacturing process on a continual basis, with changes being implemented throughout the year. Cost-reduction targets are set on a monthly basis. The goal here is to reduce the difference between profit estimates and target profits. The cost deviation analysis done in Kaizen costing examines the difference between the target Kaizen costs and the actual cost reduction achieved. The basic idea here is to make tiny incremental cost reductions on a continual basis in a product's life cycle.

Since the goal is to reduce costs on a monthly basis, every department in the company makes an effort to introduce operational changes on a daily basis. The Kaizen approach calls for analyzing every part of the process and generating ideas on how they can be further improved. Kaizen costing takes into account aspects such as time-saving strategies, employee efficiency and wastage reduction while incorporating better equipment and materials.

The fundamental basis of the Kaizen approach centers around recognizing that employees who work on a particular job are aware of how that particular task can be greatly improved. They are then empowered to do so in the Kaizen costing system. Employees are treated as valuable sources of viable solutions, an approach that differs greatly from the standard cost system that views employees as laborers with variable performance levels.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

By Logicfest — On Apr 27, 2014

@Markerrag -- the short answer is "yes." Kaizen costing addresses all three areas and I bet you already know an example of how that works. Take a video game console put out by a Japanese company, for example. You'll notice that there are several variations of those as the product is continually updated. They tend to work the same way they always did, but the components change as manufacturers find ways to improve materials or have fewer components achieve the same thing contemplated in the original design of the system. Those improvements are part of the Kaizen costing example -- consumers aren't typically aware that different versions of the same console exist and that is because of the goal of small, incremental improvements under the Kaizen philosophy.

Meanwhile, goals set in Kaizen costing can be realized through better production processes, reduced labor costs realized through having more items built with fewer man hours, etc.

By Markerrag — On Apr 26, 2014

Good overview, but I'm still a bit confused on one point. Does Kaizen costing target labor efficiency, incremental product improvements, manufacturing processes or all three? Got any examples?

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.