| Advertisement |
Target costing has been described as a process that occurs in a competitive environment, in which cost minimization is an important component of profitability. This newer approach of product costing may take into account initial design and engineering costs, as well as manufacturing costs, plus the costs of distribution, sales and services.
Definitions of Target Costing : It can be defined as “a structured approach to determining the cost at which a proposed product with specified functionality and quality must be produced, to generate a desired level of profitability at its anticipated selling price”. A critical aspect of this definition is that it emphasizes that target costing is much more than a management accounting technique. Rather, it is an important part of a comprehensive management process aimed at helping an organization to survive in an increasingly competitive environment. In this sense the term “target costing” is a misnomer: it is not a product costing system, but rather a management technique aimed at reducing a product’s life-cycle costs.
Advantages of Target Costing
1. It reinforces top-to-bottom commitment to process and product innovation, and is aimed atidentifying issues to be resolved, in order to achieve some competitive advantage.
2. It helps to create a company’s competitive future with market-driven management for
designing and manufacturing products that meet the price required for market success.
3. It uses management control systems to support and reinforce manufacturing strategies;
and to identify market opportunities that can be converted into real savings to achieve the
best value rather than simply the lowest cost.
0 comments: