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Targeting Costing

Target costing is a process that estimates product costs based on market considerations like desired selling price and profit. It involves setting target costs during design and working backwards to control costs. The key steps are setting target price and profit, determining target cost, estimating actual cost, and comparing to target. Value engineering helps achieve target costs.

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65 views11 pages

Targeting Costing

Target costing is a process that estimates product costs based on market considerations like desired selling price and profit. It involves setting target costs during design and working backwards to control costs. The key steps are setting target price and profit, determining target cost, estimating actual cost, and comparing to target. Value engineering helps achieve target costs.

Uploaded by

vicky kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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TA R G ET C O S T IN G

PRESENTED BY-
SUMAN
BBA 2
3246920008
CONTENT
• INTRODUCTION
• APPLICATION
• STEPS IN TARGET COSTING APPROACH
• ADVANTAGES OF TARGET COSTING
• LIMITATIONS OF TARGET COSTING
• IMPACT OF TARGET COSTING ON PROFITABILITY
• DIFFERENCE BETWEEN TARGET COSTING AND STANDARD COSTING
INTRODUCTION
•THERE ARE THREE C’S WHICH AFFECTS DEMAND AND SUPPLY OF A PRODUCT I.E. CUSTOMER,
COMPETITOR, AND COST. TARGET COSTING IS BASED ON THIS CONCEPT.
•TARGET COSTING IS A PROCESS OF DEVELOPING COST FOR A PRODUCT OR SERVICES BASED
ON MARKET DRIVEN CONSIDERATION,
•A METHOD THAT ALLOWS FIRMS TO PROVIDE CONSUMER WITH PRODUCTS THAT THEY WANT,
AT A PRICE THEY CAN AFFORD, AND STILL EARN DESIRED FINANCIAL RETURNS.
•CIMA
DEFINES TARGET COSTING AS,” A PRODUCT COST ESTIMATE DERIVED FROM A
COMPETITIVE MARKET PRICE
APPLICATION
• TO START FROM THE MARKET AND WORK BACK TO PRODUCTION PROCESS, THROUGH
DESIGN AND DEVELOPMENT OF PRODUCT THAT CUSTOMER NEEDS AT ACCEPTABLE PRICES.

• IT IS APPLIED IN DESIGN AND DEVELOPMENT STAGE.


• TARGET COST OF A PRODUCT= TARGET SELLING PRICE MINUS TARGET PROFIT.
• VALUE ENGINEERING IS AKEY TO ACHIEVEING TARGET COST.
• IT IS A SYSTEMATIC EVALUATIONOF ALL ASPECTS OF PRODUCTION AND MARKETING THAT
STARTS FROM R&D, DESIGN OF PRODUCTS, AND DISTRIBUTION TO CUSTOMERS, ENDING
WITH CUSTOMER SERVICES.

• TARGET COSTING IS WIDELY USED BY JAPANESE AND AMERICAN INDUSTRIES IN


AUTOMOBILES [TOYOTA], ELECTRONICS [PANASONIC], INFORMATION TECHNOLOGY [APPLE].
VALUE ENGINEERING
VALUE ENGINERRING IS A MANAGEMENT TECHNIQUE THAT SEEKS
THE BEST FUNCTIONAL BALANCE BETWEEN COST, RELIABILITY
AND PERFORMANCE OF A PRODUCT, PROJECT AND PROCESS OR
SERVICES.

IT IS A SYSTEMATIC METHOD TO IMPROVE THE VALUE OF AGOOD


OR PRODUCTS AND SERVICES BY USING AN EXAMINATION OF
FUNCTIONS. VALUE AS DEFINED, IS THE RATIO OF FUNCTION TO
COST. VALUE CAN THEREFORE BE INCREASED BY EITHER
IMPROVING THE FUNCTION OR REDUCING THE COST.
STEPS IN TARGET COSTING APPROACH

SETTINGS OF TARGET DETEMINATION OF ESTIMATING THE COMPARISION OF


SELLING PRICE TARGET PROFITS AND ACTUAL COST OF ESTIMATED COST
COST PRODUCT WITH ACTUAL COST
ADVANTAGES OF TARGET COSTING
PRODUCT INNOVATION AND COMPETITIVE ADVANTAGE.
EXPECTATIONS OF CUSTOMERS IS FULFILLED.
MARKET DRIVEN APPROACH
ACHIEVE GREATER COST EFFICIENCIES.
BREAKS DOWN BARRIERS BETWEEN DEPARTMENTS.
MOTIVATES EMPLOYEES
ENSURE PROPER PLANNING WELL AHEAD OF ACTUAL PRODUCTION AND MARKETING.
IMPACT OF TARGET COSTING
ON
 PROFITABILITY
ASSURED PROFIT BY CONSTANT REVIEW: CONTINUING EMPHASIS IS GIVEN ON PRODUCT
COSTS UNDER TARGET COSTING THROUGHOUT THE LIFE CYCLE OF EVERY
PRODUCT WHICH PROTECTS A COMPANY FROM EXPERENCING RUN AWAY COST.

PRICE DETERMINATION AND CONSEQUENT COST CONTROL: IMPROVES PROFITABILITY BY


FIXING THE TARGET SELLING PRICE AND BY REDUCING THE COST EFFECTIVELY
TO MAINTAIN THE DESIRED PROFIT.

IMPACT ON PROFITABILITY: HSVE POSITIVE IMPACT ON PROFITABILITY, DEPENDING


ON THE COMMITMENT OF MANAGEMENT TO ITS USE. TARGET COSTING IS
REALLY PART OF LARGER CONCEPT CALLED CINCURRENT ENGINEERING AND
THUS INVOLVES PARTICIPANTS FROM MANY DEPARTMENTS TO WORK TOGETHER
ON PROJECT TEAMS
LIMATATIONS OF TARGET COSTING
EFFECTIVE IMPLEMENTATION AND USE REQUIRES THE DEVELOMENT OF DETAILED COST DATA.
MISUSE OF THE TECHNIQUE MAY BE POSSIBLE.
EMPLOYEE WORK UNDER THE STRONG PRESSURE.
ITS IMPLEMENTATION REQUIRES WILLINGNESS TO COOPERATE.
REQUIRES MANY MEETINGS FOR COORDINATION.
MAY REDUCE THE QUALITY OF PRODUCTS DUE TO THE USE OF CHEAP COMPONENTS WHICH NAY BE OF
INFERIOR QUALITY
DIFFERENCE BETWEEN TARGET
COSTIING AND STANDARD COSTING
TARGET COSTING STANDARD COSTING
• APPLIED DURING PLANNING AND • APPLIED DURING THE PRODUCTION STAGE OF
DESIGNING STAGE OF PRODUCT’S LIFE. THE PRODUCT’S LIFE CYCLE.

• TARGET COSTING INVOLVES A PROACTIVE • STANDARD COSTING INVOLVES A REACTIVE


COST CONTROL APPROACH DURING
COST PLANNING APPROACH WHERE PRICING
PRODUCTION.
IS CONSIDERED PRIOR TO PRODUCTION.
• STANDARD COSTING IS SUITABLE FOR PROCESS
• TARGET COSTING IS SUITABLE FOR
ORIENTED INDUSTRIES [CONTINOUS
ASSEMBLY ORIENTED INDUSTRIES. PRODUCTION].

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