What is Target Costing? | What are its Features?

What is Target Costing?

Target costing is getting importance during the period of difficult market conditions. There is a ever changing of market conditions for any product. Therefore, the manufacturing companies are very eager to withstand in the business world by encountering the tough market conditions.

During 1960’s, there is a difficult market conditions in Japan. Even though, they are experiencing shortage of various resources and skills needed for the development of new concepts, tools and techniques. In this context, target costing, which is a new tool of management, has emerged and widely practiced in more than 80% of assembly industries and 60% of processing industries. This new concept is developed in win the competitors by maintaining good quality at lower cost with maximum productivity.

Meaning of Target Cost

Target cost means an estimation of total cost to win in the competition in terms of quality, cost and productivity. It is not a method or technique of costing. But, it is a management technique used to survive under the increasing competitive environment.

Features of Target Costing

The main features of target costing are presented below.

1. It is a part of management process used for the cost reduction and cost management.

2. It gives much importance to customers views, market conditions and profitability.

3. It is considered as an integral part of product design and introduction of new product.

4. It emphasized the earning of at least target profit margin from each product at any cost.

5. Under the target costing process, the target selling price is fixed on the basis of various sales forecasting techniques.

6. The fixing of selling price is based on the fixing of target production volumes since there is a relationship between price and volume.

7. The required profit margin is included in the target selling price.

8. The product design specifications, quality and the customers requirements and expectations are taken into consideration while fixing target selling price.

9. The difference between the target selling price and required profit margin is the target cost.

10. The cost reduction programme is followed on the basis of the components of current cost of the product. The current cost is based on existing technologies.

11. The difference between current cost and target cost is the level of cost reduction.

12. Target cost is divided into various parts. Each part is properly studied for finding the opportunities connected with to know the extent of cost reduction possibilities.

13. The studying of each part is known as value engineering (VE) and value analysis (VA).

14. A team is constituted to integrate the activities like marketing, engineering, manufacturing purchasing and finance in order to achieve the objectives of target costing.

Leave a Reply

Recent Posts




Comments


Related pages


what is diseconomies of scale in economicsdisadvantage of oligopolymanual filing system disadvantagesqualities of auditingdefinition of precis writingdisadvantages of market researchasset securitization meaningadvantages and disadvantages of housing financeexamples of a vertical mergeradvantages and disadvantages of probability samplingadvantages and disadvantages of newspaper advertisingcapex formmerits and demerits of npvwhat are the advantages of socialismtotal productive maintenance definitionleadership autocraticobject clause in memorandum of associationqualities of a businessmanwhat is a secured debenturematerial quantity variance formuladistinguish between advertising and sales promotionmeaning of export marketingadvantages of audit programmee-commerce drawbacksactivity based costing implementation stepse commerce benefits and drawbacksdefine unity of commanddifference between convenience and purposive samplingadvantages of economic order quantityservices provided by sbi bankhistory icici banksubculture in indiameasuring moralewhat is business reengineering processtypes of variances in standard costingmeaning precisbenefits of quality circlesformula for profitability ratiosidbi loandisadvantage of cluster samplingmeasures to control absenteeismdefine sebileverage and gearingfeatures of bombay stock exchangeactivity based costing concepttotal absorption costingadvantage and disadvantage of e commerceexample of a bilateral contractadvantages of transactional marketingmeaning of nationalized bankadvantages of cash flow statementwhat is the difference between centralized and decentralizedfactors influencing international pricingdefine negotiablecivil and criminal liabilities of an auditorprecis writingprécis meaningmeaning of collateral security in hindiroles of managerial economicsrupee cost averagingstructure of european unionsole trader disadvantagesdirect material formularedeemable preference sharelimitations of job analysisdefinition of decentralizationprofitability ratio analysis interpretationformula to calculate current ratioadvantages of systematic random samplingwhat does caveat emptor meanrole of financial intermediation