STRATEGIC TARGET COSTING

Target costing is a cost management concept that originates from the Japanese industries in the 1970s. The ultimate objective for the use of target costing is to help businesses to sustain competitive positions. Current usage of target costing focuses on establishing cost targets for the products on the basis of meeting competitive market prices. The firm then proceeds to achieve target costs for each of the products using design-to-cost, value engineering and other cost reduction techniques. This paper proposes a model for implementing target costing that takes into account the overall portfolio of products/services that an organization has to offer and how it can strategically assign target costs to each of the products/services in the portfolio so as to create the desired economic value for long-term competitiveness. The model calls for the use of activity-based costing to provide better cost information on the products and to maximize the effectiveness of cost reduction plans. The outcome for using the proposed model is to allow firms to apply target costing that will fit into its business strategy.