Target Costing

I Table of Content

1 Introduction 1
1.1 Definition of Target Costing 1
1.2 Historical Background 2
1.3 Objectives of Target Costing 3
2 Target Costing Principles 4
2.1 Price Led Costing 4
2.2 Customer Focus 4
2.3 Design Focus 5
2.4 Cross-Functional Involvement 5
2.5 Life Cycle Cost 5
3 Distinguishing Target Costing from Traditional Cost Management 6
4 Setting up a Target Costing Management 8
4.1 Fundamental Work 8
4.2 Systems of Managing Target Costing 8
4.3 Principles of Target Costing 9
4.4 Procedures of Target Costing 9
4.5 Risk of Target Costing 11
5 Three Forms of Target Costing 13
5.1 Price-based Target Costing 13
5.2 Value-based Target Costing 14
5.3 Activity-based Target Costing 14
5.4 Alternative Target Costing Methods 16
6 Case Study X-Bikes GmbH 19
6.1 Initial Situation 19
6.2 Dealing with the Crisis 21
6.3 Market Analysis 24
6.4 Reverse Calculation 27
6.5 Target Cost Matrix & Target Cost Control Diagram 30
7 Conclusion 34

Figure 1: Target Costing Key Principles 4
Figure 2: ABC Monitors 15
Figure 3: German Bike Market Overview 19
Figure 4: Quantity of Bikes Sold 20
Figure 5: Sales of Business Segments 20
Figure 6: EBIT of Business Segments 21
Figure 7: Reverse Calculation Structure 28
Figure 8: Cost Plus Calculation 28
Figure 9: Cost by Type of Bicycle 28
Figure 10: Reverse Calculation 29
Figure 11: Target Costing Index Matrix 30
Figure 12: Target Cost Control Diagram 31
Figure 13: Allowable Cost per Items According to Market Price 32
Figure 14: Allowable Cost only Considering Larger than 1 TCI 33 Introduction

Increasing global competition has made it important for every firm to constantly improve on their production processes in other to enhance their cost control and increase their competitiveness.
Target costing is an important approach that helps us to recognize the features to be improving on and help us to set our target for designing and cost control.
Target costing is simply a cost