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TARGET COSTING
“We tend to build up a model of the product, determine what it is going to cost and then ask whether we can sell it for that. The Japanese turn around. They say, “It’s got to sell for X. Let’s work backwards to make sure we can achieve it”. I’ve never seen this done by a U.S company with the same intensity - Robin Cooper − Professor, Harvard University

In today’s rapidly changing business environment, product innovation is one of the keys to a company’s survival and competitiveness. Manufacturers can no longer produce and market large volumes of standard products with a relatively stable market and technological climate. There has been a shift toward unstable, rapidly changing markets and technologies. To implement market-driven management across the organisation, measurement and cost control systems must be designed to motivate the desired consumer-oriented behaviour. The strategies that determine the direction of product innovation have become crucial to corporate management. Industrial marketers play a major role in product innovation, and cost accounting must support this role. Cost management methods must help with the production of new products that meet customer demands at the lowest cost, as well as with cost reduction of existing products by eliminating waste. Japan’s Competitive Thinking Triggers Target Costing One of the most influential changes in the practice of management to emerge is kaizen - the philosophy of continuous improvement. Originally a Japanese idea, it is being adopted around the world as an integral part of management strategy. A variation of this concept is that of ‘kaizen costing’, in which the emphasis is on gradual ongoing cost reduction. Deriving from the thought of continuously improving costing, Japanese organisations are moving to a more radical approach referred to as target costing in a move to maintain the competitive edge. The Japanese believe that the key to achieving a competitive edge is simplicity. They... [continues]

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