Target costing is a cost management tool used to reduce the overall cost of a product over its lifecycle. It focuses on customers, design, cross-functional involvement, and a lifecycle orientation. For Tata Nano, target costing was used to identify the maximum cost to manufacture the vehicle at its target selling price and profit margin. Tata Nano achieved its target cost by simplifying manufacturing processes, reducing inventory and working capital costs, eliminating unnecessary parts, establishing an efficient supply chain network, using a smaller design to reduce costs, and material substitution.

1.  Name: Md. Kamrul HasanName: Md. Kamrul Hasan
ChowdhuryChowdhury
 Roll: 1291Roll: 1291
 Semester: 5Semester: 5thth
USTC

3. Target costing approach forTarget costing approach for
TATA NANOTATA NANO

4. DefinitionDefinition
 Target CostingTarget Costing is defined asis 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.

5. TARGET-COSTING PRINCIPLESTARGET-COSTING PRINCIPLES
1.1. price-led costing.price-led costing.
2.2. focus on customers.focus on customers.
3.3. focus on design.focus on design.
4.4. cross-functional involvement.cross-functional involvement.
5.5. value-chain involvement.value-chain involvement.
6.6. a life-cycle orientationa life-cycle orientation....

6. Target costing objectivesTarget costing objectives
 To identify the cost at which the productTo identify the cost at which the product
must be manufactured if it's to earn itsmust be manufactured if it's to earn its
target profit margin at its expected ortarget profit margin at its expected or
target selling price.target selling price.
 To decompose the production process andTo decompose the production process and
thenthen to set cost targets for each productto set cost targets for each product
elementelement..

7. Approaches to targetApproaches to target
costingcosting
 Price-based targetingPrice-based targeting
 Cost-based targetingCost-based targeting
 Value-based targetingValue-based targeting
 A target cost is the maximum amount of costA target cost is the maximum amount of cost
that can be incurred on a product.that can be incurred on a product.
 Target Cost = Market Price – ExpectedTarget Cost = Market Price – Expected
MarginMargin

8. BenefitsBenefits
 Delivering the optimal value proposition toDelivering the optimal value proposition to
end customers.end customers.
 Minimizing product-line complexity.Minimizing product-line complexity.
 Selecting appropriate product and processSelecting appropriate product and process
technologies.technologies.
 LoweringLowering productproduct design late in thedesign late in the
innovation process.innovation process.
 Eliminating cost overruns.Eliminating cost overruns.

9. TATA NANO a Perfect case ofTATA NANO a Perfect case of
Target Costing approachTarget Costing approach

10. Use 7 PsUse 7 Ps
TATA NANOTATA NANO
For fixing up the Terget cost TataFor fixing up the Terget cost Tata
Nano use all the 7Ps like:-Nano use all the 7Ps like:-
 Purpose
 Price
 People
 Product
 Place
 Process
 Promotion

11. HOW TATA NANO ACHIVEHOW TATA NANO ACHIVE
TARGRT COSTTARGRT COST
1. Cost and waste is driven out of supply chains by1. Cost and waste is driven out of supply chains by
reducing inventoryreducing inventory
2. By simplify the manufacturing process.2. By simplify the manufacturing process.
3. By reducing working capital cost.3. By reducing working capital cost.
4. Eliminated or reduce non-essential part4. Eliminated or reduce non-essential part
5. By establishing proper Supply Chain Network5. By establishing proper Supply Chain Network
DesignDesign
6. Smaller size of car and its component reduce6. Smaller size of car and its component reduce
cost.cost.
7. By the use of Martial substitution ( e.g.7. By the use of Martial substitution ( e.g.

12. Thank you for attentionThank you for attention