Final answer:
The process of continual cost reduction during the manufacturing phase of an existing product is termed kaizen costing, which is common in high-tech industries that experience falling average total costs due to market growth and technology improvements.
Step-by-step explanation:
The process of continual cost reduction during the manufacturing phase of an existing product is termed kaizen costing. This strategy is applied in industries, like high-tech ones, where the market expansion and technological improvements facilitate falling average total costs for both old and new firms. Kaizen costing focuses on small, incremental changes that over time result in significant cost savings and efficiency improvements. It differs from target costing, which is more about setting a price point before a product is produced, or economies of scale, which refer to cost savings associated with increased levels of production.
For example, as firms in a decreasing cost industry adapt to advancing technologies or their employees gain more education, they experience cost reductions. As they continue to expand their output, the principle of economies of scale kicks in, reducing the cost per unit. This is similar to how larger stores like Costco or Walmart are able to offer lower prices due to their large volume of sales.