When these factors come into the picture, management wants to control the costs, as they have little or no control over the selling price. The key objective of target costing is to enable management to use proactive cost planning, cost management, and cost reduction practices where costs are planned and calculated early in the design and development cycle, rather than during the later stages of product development and production.
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Simply share your course goals with our world-class experts, and they will offer you a selection of outstanding, up-to-the-minute solutions.Statements on Management Accounting STRATEGIC COST MANAGEMENT TITLE Implementing Target Costing CREDITS Implementing Target Costing was approved for IMA thanks the Consortium for Advanced issuance as a Statement on Management Accounting Manufacturing-International (CAM-I) for their support in by the Management Accounting Committee (MAC) of the development of this SMA.
Target costing occurs within the product development cycle. This means it starts when a product is in its concept stages and ends when a product has been released for manufacturing. Also, in order to reduce the actual cost to the target cost, the whole company has to be a cross-functional product team so that the members from design, engineering, purchasing, manufacturing and marketing work together to make sure the product is under the target cost.
Also, target costing minimize product cycle time; the company is able to eliminate unnecessary steps that won’t have any value added %(4).
The primary focus of this text is on understanding and using the concepts of contemporary management accounting for strategic business decisions.
The text maps out contemporary changes to management accounting, explaining the major new techniques, practices and philosophies associated with the rise of strategic management accounting.
Consistent with the notion of price-based costing, several authors have argued that target costing is a superior approach to cost reduction and control when compared with typical standard-cost systems.
Target costing is an approach in which companies set targets for its costs based on the price prevalent in the market and the profit margin they want to earn.