* Target costing: * Improve the understanding of the costs of products and services, where issues are identified early in the service development process at a point where action can be taken * Brings a focus on the final users of the service or product * Is multidisciplinary and involves staff from all areas in the cost analysis and encourages them to take responsibility for managing the costs * Provides a framework which encourages a focus on the wider supply chain, in effect a whole systems approach. * Can be used by service organisations to look at the impact which new services have on the existing ones. * Develops specific and real targets which ensure satisfactory financial performance * Highlights other problems in areas such as purchasing which affect the cost of the product or service. * * Advantages: * The main reason why companies use target costing is that in order to plan or project the costs of products before they are adopted and make sure low-margin products are not introduced because of low return. * To reduce costs before they are locked in * To control design specifications and production tech * As an analysis which highlights other problems * As a driver for cost improvement * To encourage a focus on the customer * * Example: ITT Automotive, one of the world largest suppliers of auto parts which produce include brake systems and components, wiper handling systems and components, fluid handling systems and components, structural systems and components, electric motors, switches, and lamps. *
The brakes area has used target costing extensively for the few years because of an extremely competitive environment. For example, the price of anti-lock brake systems, which currently sell for about $200, is expected to drop to $100 by the year 2000. Furthermore, the