The Steps of Implementing Target Costing
10 Pages Posted: 17 Aug 2009 Last revised: 3 Feb 2014
Date Written: April 17, 2013
Target costing has a history of more than 40 years in the Japanese industry. In 1959, Toyota developed the preliminary target costing approach. Although many manufacturers in Japan use target costing, the system used at Toyota Motor Corporation is the oldest and considered by many the most technically advanced. While the idea of systematic cost reduction had existed at Toyota since it was founded, the process was first codified in the mid-1960s, when the firm set itself the objective of producing a $1,000 car (Cooper, 2002). Most managements in the United States and the world, however, do not know enough about target costing to understand its importance and often underestimate the power of target costing as a serious competitive tool. When general managers read the world 'costing' they naturally assume it is a topic for their finance or accounting staff. They misunderestimate that target costing is really a systematic profit and cost management process. This article begins with the role management accounting, definition of target costing and an overview of the target costing process. It than describes the steps that are necessary to implement target costing.
Keywords: target costing, cost management, costing, management accounting
JEL Classification: M40, M46
Suggested Citation: Suggested Citation