Japanese Target Costing
Japanese Target Costing: A Historical Perspective
Patrick Feil, Keun-Hyo Yook, Il-Woon Kim
INTRODUCTION Target costing originated in Japan in the 1960s, though it remained a secret for years. Since the 1980s, however, when target costing was widely recognized as a major factor for the superior competitive position of Japanese companies, extensive efforts have been made to convey target costing to Western companies. Many large companies in North America and Europe have tried to adopt target costing to enhance their cost management and, thus, increase their competitiveness. Consequently, many variations of target costing have been developed and are being used in different countries. Since target costing, like many other management practices and philosophies, is environment-specific, it is not surprising to see these variations in practice. Even though many published articles have greatly contributed to the wider use of target costing, most of the articles have dealt with only one specific aspect of target costing, and some have caused misconceptions about Japanese target costing. These misconceptions may result from the limited exposure of some of the authors to the holistic approach of target costing in Japan. THE ORIGIN OF TARGET COSTING A retrograde approach for determining product costs, which is one of the most important features of target costing, can be found as early as the beginning of the last century at Ford in the United States and in the development of the Volkswagen Beetle in Germany in the 1930s. At Volkswagen, in order to meet the price goal of DM 990, alternative technical solutions were weighed on the basis of cost considerations (Rösler, 1996). Yet a full-fledged target costing approach began during the period of scarce resources after World War II. During this time, Americans created a concept of maximizing desirable product attributes while at the same time minimizing product costs (Leahy, 1998). The technique became known as “value
Patrick Feil, Keun-Hyo Yook, Il-Woon Kim
INTRODUCTION Target costing originated in Japan in the 1960s, though it remained a secret for years. Since the 1980s, however, when target costing was widely recognized as a major factor for the superior competitive position of Japanese companies, extensive efforts have been made to convey target costing to Western companies. Many large companies in North America and Europe have tried to adopt target costing to enhance their cost management and, thus, increase their competitiveness. Consequently, many variations of target costing have been developed and are being used in different countries. Since target costing, like many other management practices and philosophies, is environment-specific, it is not surprising to see these variations in practice. Even though many published articles have greatly contributed to the wider use of target costing, most of the articles have dealt with only one specific aspect of target costing, and some have caused misconceptions about Japanese target costing. These misconceptions may result from the limited exposure of some of the authors to the holistic approach of target costing in Japan. THE ORIGIN OF TARGET COSTING A retrograde approach for determining product costs, which is one of the most important features of target costing, can be found as early as the beginning of the last century at Ford in the United States and in the development of the Volkswagen Beetle in Germany in the 1930s. At Volkswagen, in order to meet the price goal of DM 990, alternative technical solutions were weighed on the basis of cost considerations (Rösler, 1996). Yet a full-fledged target costing approach began during the period of scarce resources after World War II. During this time, Americans created a concept of maximizing desirable product attributes while at the same time minimizing product costs (Leahy, 1998). The technique became known as “value
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