Target Costing
Article 32
TARGET COSTING FOR NEW-PRODUCT DEVELOPMENT: PRODUCTLEVEL TARGET COSTING
Robin Cooper and Regine Slagmulder
Editors’ Note: This article is an updated synthesis of in-depth explorations contained in Target Costing and Value Engineering, by Robin Cooper and Regine Slagmulder (Portland, Oregon: Productivity Press, 1997). Part two of the series discusses product-level target costing; part three, to be featured in an upcoming issue, will address component-level target costing. tomers. Consequently, the objective of product-level target costing is to increase the allowable cost of the product to a level that can reasonably be expected to be achievable, given the capabilities of the firm and its suppliers (see Exhibit 1).
EXECUTIVE SUMMARY
• Product-level target costing works to increase the allowable cost of the product to a level that is both reasonable and achievable given the capabilities of the firm and its suppliers. • Step one establishes the target cost by incorporating the capability of the firm and its suppliers into the allowable cost so that an achievable product-level target cost is established. • Step two uses value engineering to identify ways to design the product so that it can be manufactured at its target cost. • Step three applies the disciplining mechanisms to help ensure that the product-level target cost is achieved.
The target costing process contains three major sections: market-driven costing, product-level target costing, and component-level target costing. In part two of a three part series, this article discusses how product-level target costing works to increase the allowable cost of the product to a level that is both reasonable and achievable given the capabilities of the firm and its suppliers, in a three step process. Step one establishes the target cost by incorporating the capability of the firm and its suppliers into the allowable cost so that an achievable product-level target cost is established. Step two uses
TARGET COSTING FOR NEW-PRODUCT DEVELOPMENT: PRODUCTLEVEL TARGET COSTING
Robin Cooper and Regine Slagmulder
Editors’ Note: This article is an updated synthesis of in-depth explorations contained in Target Costing and Value Engineering, by Robin Cooper and Regine Slagmulder (Portland, Oregon: Productivity Press, 1997). Part two of the series discusses product-level target costing; part three, to be featured in an upcoming issue, will address component-level target costing. tomers. Consequently, the objective of product-level target costing is to increase the allowable cost of the product to a level that can reasonably be expected to be achievable, given the capabilities of the firm and its suppliers (see Exhibit 1).
EXECUTIVE SUMMARY
• Product-level target costing works to increase the allowable cost of the product to a level that is both reasonable and achievable given the capabilities of the firm and its suppliers. • Step one establishes the target cost by incorporating the capability of the firm and its suppliers into the allowable cost so that an achievable product-level target cost is established. • Step two uses value engineering to identify ways to design the product so that it can be manufactured at its target cost. • Step three applies the disciplining mechanisms to help ensure that the product-level target cost is achieved.
The target costing process contains three major sections: market-driven costing, product-level target costing, and component-level target costing. In part two of a three part series, this article discusses how product-level target costing works to increase the allowable cost of the product to a level that is both reasonable and achievable given the capabilities of the firm and its suppliers, in a three step process. Step one establishes the target cost by incorporating the capability of the firm and its suppliers into the allowable cost so that an achievable product-level target cost is established. Step two uses