target costing.

2. Definition
Target Costing is defined as a cost
management tool for reducing the overall cost
of a product over its entire life-cycle with the
help of production, engineering, research and
design.

3. History
 Target costing was invented by Toyota in 1965
Reasons:
 80-90% of the life cycle cost is determined at the design phase
of the product (Tanaka)
 continuous improvement, “cost kaizen”, inevitably lead to
fewer opportunities to cut costs (Tanaka)
SOLUTION: actual costs -> predetermined costs

4. STAGES IN TARGET COSTING
Identifying the product that satisfies the needs of the potential
customers.
Reaction of the competitors.
Determination of target price.
Determination of target operating income per unit.
Deriving target cost per unit
Application of value engineering

5. Features of Target Costing Process
 It is an integral part of the design and introduction of new products.
 A target selling price is determined using various sales forecasting techniques.
 Establishment of target production volumes.
 Determine cost reduction targets.
 A fair degree of judgement.
 A series of intense activities.
 A team-based set up to achieve its objectives.

6. OBJECTIVES
 To lower the costs of new products so that the required profit
level can be ensured.
 It emphasizes understanding the market and competition
 To motivate all company employees to achieve the target profit

7. Advantages of Target Costing
Proactive approach to cost management
Orients organization toward customer
Breaks down barriers between departments
Enhances employee awareness and empowerment
Reduces development cycle of a product.
Reduces cost of products.
It enables the organization to face & stay in the ever growing competitive
environment.
It aligns cost of features with consumers’ willingness to pay.
It reinforces the commitment for INNOVATION.
It gives the consumers “MAX. SATISFACTION”.
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8. Disadvantages of Target Costing
Requires many meetings for coordination
Development of process can be lengthened.
A large amount of cost cutting can result in finger pointing.
Sometimes difficult to reach a conclusion.

9. Companies using Target Costing
• Companies that use target costing : Although it is a relatively new concept, it is
being used heavily in most large companies especially automotive and aerospace
industry.
e.g:
General Electric
 Motorola
U.S auto companies G.M
Ford and Diamler Chrysler.
Japan’s auto companies Toyota, Honda ,Nissan , Mitsubishi
Nasa
U.S Military
Sony.

10. THANK YOU