Process of Target Costing
Disadvantages or Limitations of Target Costing
SANDRA ETTY AK DIET
AZEEMA BT BUJANG
HAZLINDA BT NAGATIJO
ZARANATUL NADIA BT HIBBAN
NURAINI BT MOHD REBI
Is the system to support the cost reduction process in the developing and designing phase of an entirely new model, a full model change or a minor model change.
(Monden & Hamada, 2001)
Objectives of Target Costing
Enable company to manage the business to be profitable in a very competitive marketplace.
Enable the understanding of the market and an intent to meet customer needs in term of product features, quality, timeliness and price
balance the trade-offs across the organization and establishes teams to address them early in the development cycle and have the fundamental objective to make money, to be able to reinvest, grow and increase value.
1. Spend huge amount of time & effort to produced
detailed cost data
2. Requires willingness to cooperate or teamwork
3. Can cause employee burnout
4. Experince overly-long product development time
Real Case Study
Target Costing Applicability in Malaysia
In 1980s, Olympus began to experience stiff competition from Canon, Minolta, Nixon, Asahi, Pentax.
Collect information of the competitors & understand the environment
Adopted Cost Reduction Program (Target Costing)
Preliminary target cost
= Target price – Margin requirement
In 1990s, production costs REDUCED by 35% !
TC was ranked 20 out of 28 MA technique in terms of importance
1. Establishing the target price
2. Establishing the target profit margin and allowable cost
3. Determining the current cost and target cost
4. Disaggregating the target cost to components and functions
Reduced Development Cycle
Changes of ideas on product produce
Hard to maintain the teamwork and corporation
Alert & active in find the target costing information to make sure its on track
Required lots of effort & time to close gap between target costing and actual cost estimate
Difficulty in identify customer needs & wants
Use of cheaper component
Most studies are either for Manufacturing or Automotive industries
TC and Kaizen are most widely use by SMI manufacturers
TC applicability depends on how the manufacturers view its applicability