Target Costing Essay Example | Topics and Well Written Essays - 1000 words

Target Costing - Essay Example Target costing in the initial stage allows business to control the design, specification and development technique to control the overall cost. TC provides business with other than basic costing processes. Chen and Chung (2002) discussed the benefit that TC lends by enabling manager to indentify the fraudulent as well as corruption practices in involved departments. Swenson, Ansari, Bell and Kim (2003) identified most important benefit of the TC. Swenson, Ansari, Bell and Kim (2003) state that TC system is originally a market driven system and therefore, forces business to follow market trends in order to control cost instead of relying only on internally developed metrics. Hence, results in market and customer focused processes. DEMERITS Davila and Wouters (2004) criticized the target costing for being extensively detail oriented resulting in bureaucratic procedures and hence consuming time at length. TC to be successfully implemented requires entire supply chain components to play respective part; business employing procedure in isolation cannot fetch the due benefits. In case of excessive cost control measures without coordination, TC can result in contradictions among business functions pointing fingers upon each other functions. Jackson and Lapsley (2003) discussed that TC to be implemented successfully require businesses to develop coordinated system with other techniques that have been limited employed in businesses; reducing the level of benefit. DIFFERENTIATION OF TARGET COSTING FROM OTHER CONCEPTS: All costing techniques are designed to get maximum benefit to business; however, differences in focal attention substantially differentiate each technique with other. The basic difference between TC and other costing methods is that TC puts emphasis in designing stage whereas other methods trenches cost reduction from entire production process (Garrison, Noreen, & Brewer, 2003). Given below is the discussion of point of differences of TC with other costing techniques: FULL COSTING/ABSORPTION COSTING: Absorption costing traditionally uses cost ascertainment for the product by simply including both fixed and variable cost and charges entire cost to production. The price of the product is determined based on accounting the production cost in total. In contrary to this, in target costing system the price of the product is signaled by the market. Manufacturer of the products nets the price fixed by market and develops plan to produce the product within the left out portion of prices. This leads to cost reduction in the production plan and design unlike other costing systems that bargain cost in operational constituents of the product. Hence, the difference between the two systems lies in former deciding price based on cost whereas in latter system price and required profit margin determines the costing decisions (Garrison, Noreen, & Brewer, 2003). VARIABLE COSTING: In variable costing techniques, cost of manufacturing includes only those c ost components that vary in the given period for the