Traditional Costing Process Model
Target Costing Process Model
Merits & Demerits Target Costing
Case Study Target Costing
Target Costing is a process of developing costs for a product (or
services) based on market driven considerations.
A method that allows firms to provide consumers with products that they
want, at a price they can afford, and still earn desired financial returns.
Six Key Principles
Price Led Costing
Focus on design of products and processes
Life Cycle cost reduction
Value Chain involvement
To start from the market and work back to production process, through
design and development of product that customer needs at acceptable
It is applied in the design and development stage.
Target Cost of a product = Target selling price less Target Profit
Value Engineering is a key to achieving target costs.
It is a systematic evaluation of all aspects of production and marketing that starts
from R&D, Design of products, and distribution to customers, ending with customer
Target costing is widely used by Japanese and American Industries in
automobiles (Toyota), Electronics (Panasonic), Information Technology
Value Engineering (VE) is a management technique that seeks the
best functional balance between cost , reliability and performance of a
product, project and process or service.
Value engineering (VE) is a systematic method to improve the "value"
of goods or products and services by using an examination of function.
Value, as defined, is the ratio of function to cost. Value can therefore be
increased by either improving the function or reducing the cost
For example, the function of a pencil is to "make marks". This then facilitates
considering what else can make marks. From a spray can, lipstick, a diamond
on glass to a stick in the sand, one can then clearly decide upon which
alternative solution is most appropriate.
CHANGE FOR BETTER
TARGET COSTING / KAIZEN COSTING
Kaizen costing is a cost-reduction system that is applied to a
product in production.
The word ‘Kaizen’ translates to ‘continuous improvement’ or
‘change for the better’ and aims to improve productivity by
making gradual changes to the entire manufacturing process.
Kaizen costing is applied to products that are already in production phase. Prior
to kaizen costing, when the products are under development phase, Target
Costing is applied.
TRADITIONAL COSTING PROCESS MODEL
Product Design and
Supplier Cost Estimates
Process Design & Product
TARGET COSTING PROCESS MODEL
Production and Logistics
PRODUCT DEVELOPMENT - NANO
To develop a product for people who want to move from 2 wheeler to 4
wheeler in affordable price.
Car to cost within a price range of Rs 1,00,000.
Car to be developed with low cost, safety, low on emissions and fuel
To be a truly people’s car.
Car to be developed on three main factors.
PRODUCT DEVELOPMENT (TARGET COSTING)
Just one wind shield
Plastic panel designed
to eliminate need of
Seats with integrated
Use of aluminum
engines to reduce
weight and cost.
No radio, No AC, No
Use of Plastic and
adhesive rather than
Welding and metal
Cost Accounting – Theory & Practice
www.google.com , www.wikipedia.com