i NA  

Table of Content

List of Abbreviations.......……………………………………………………………....ii

List of Figures and Tables………………...…………………………………………..iii

1  NA  

  Introduction  1

2  NA  

  Basic ideas and historical development of Target Costing  1

2.1  NA  

  Definition of Target Costing  1

2.2  NA  

  Historical development  2

2.3  NA  

  Areas of application  2

2.4  NA  

  Separation from regular cost accounting  3

3  NA  

  Goals of Target Costing  4

4  NA  

  Target Costing process  4

4.1  NA  

  Market information as basis for Target Costing  5

4.2  NA  

  Definition of target costs  5

4.3  NA  

  Splitting of target costs  7

4.4  NA  

  Achievement of target costs  9

5  NA  

  Conclusion  10

  Reference List  11

Appendix ........................................................................................................................  12  12

List of Abbreviations

et al. et alii

f.e. for example

ROS Return on Sales

R&D Research & Development

VW Volkswagen

  iii NA  

List of Figures and Tables

  Figure 1 Procedure of definition of target costs 7  

Goals and method of the Target Costing Approach 1

1 Introduction

Contemporary times are characterized by quick, dynamic, and continuing changes in the economy. Therefore, companies have to adapt flexibly and innovatively to these changes in order to stay competitive and cope with the increasing pressure of competi- tion. In particular, Asian and East-European competitors gain market share by offering products of better quality than in earlier times and for lower costs. Under these condi- tions, costs represent a fundamental factor for the success of western companies. Ac- cordingly, management and employees have to fully exploit the potential that cost man- agement and reduction measures offer. However, costs are not the only buying decision criterion. Customers expect products with high quality but for a low or moderate price. Correspondingly, companies have to adjust their new product developments and pro- duction systems to market requirements. This can be achieved by the Target Costing approach, a tool that is applied in more and more companies.

Therefore, the aim of this essay is to explain the goals and method of Target Costing. It starts with giving some background information about Target Costing and its historical development. Chapter three describes the goals of Target Costing. Then, the Target Costing process is explained in detail. Finally, this essay concludes by discussing that Target Costing is an effective cost management tool for developing new products ac- cording to market requirements.

2 Basic ideas and historical development of Target Costing

2.1 Definition of Target Costing

In general, Target Costing is considered as to be an instrument for management pur- poses. But there is less agreement on a general definition for this concept. One defini- tion that is commonly used in German studies was developed by Horváth, Niemand, and Wolbold (1993). According to them, Target Costing is “an extensive bundle of instru- ments for planning, controlling, and management of costs that are applied early in prod- uct and process development in order to be able to early arrange the cost structure with regard to the market requirements. Hence, the Target Costing Approach requests the cost-oriented coordination of all divisions which are involved in the product develop- ment process” (p. 4). This definition points out that Target Costing is a strategic cost management tool and emphasizes the importance of the planning aspect in the early