Target Costing Case Study

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INTRODUCTION OF TARGET COSTING
The term “target costing” was born in Japan on 1963. It has already been passed for over 40 years. It was developed by TOYOTA Corporation in the beginning of 1960s and since then, it has been used by the Japanese automotive industry in general (Afonso et al., 2008).
Target costing can be defined as a cost management tool to reduce the overall cost of a product over it’s entirely life cycle with the help of production, engineering, research and design, marketing and accounting departments (Michiharu Sakura, 1989). Peter Horvárth (1993) defines target costing as a comprehensive cost planning, cost management, and cost control concept which is used primarily at the early stages of product design.
Commonly, it is
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Previously, it used to be only finance function. Now they included the representatives from product technology, manufacturing, marketing, logistic and finance. There will also be a continuous improvement after the production begins. The product features and its benefits is change if only they meet customer expectations about value and if the additions enhance their market shares and sales.
The benefits of Target Costing to the Goodyear Tire & Rubber Company
Target costing had brought Goodyear in bringing the higher-quality of products to the consumer faster, more profitably and lower costs than ever before. It has the great advantage of being driven by competitive market prices and shaped by the customers. More recently, target costing played a far more important role in Goodyear’s product development which they introduced since 1998.
Goodyear has always strived to offer products that meet the customers’ needs. But without the guiding light of the cost target, there was always the danger that they might provide elegant solutions to consumer needs that no one could afford in the world. And, in fact, that appears to be precisely what happened to some of their competitors. Their solutions missed the point of target costing. Thus, they never have been fully accepted in the
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However, if it was used in appropriate way, it would give a great advantage to the company itself. If not, the main point or the objective of the company in using this method of costing would be missed.
Target costing is delivering the optimal value to the end customer. Customers would get a product where the price is affordable and worth to its quality that satisfied the customers. It is also being able to minimize the product-line capacity as the reduction of its cost shorter the product life cycles. Some of the processes are being eliminated to ensure that the process of manufacturing the product is within the cost parameter.
But there would be too much focus on customers demand and possible misuse of the techniques. The desire to fulfil the customers demand but within the target cost, cheap components are going to be selected. And this might lower the quality of the products. This is how the target costing techniques is going misused where the customers’ demands are going to be featured in the wrong ways. It might be stressful for the cross-functional teams to attain in manufacturing a high quality product that people desired but within a cost parameter and it still can make profit which has been desired earlier. Thus, there would be the possibilities for the potential organizational conflict to be

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