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高頓名師解析2013年ACCA考試F5業(yè)績管理知識點3

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Target costing

Relevant to paper F5

Target costing is one of the key costing methods in F5 performance measurement and in modern business environment.

As a totally new product and its industry develop, it starts to compete based on its new technology, concept, and/or service. Competitors emerge and the basis for competition evolves to other areas such as cycle time, quality, or reliability. As an industry becomes mature, the basis of competition typically moves to price. Profit margins shrink. Companies begin focusing on cost reduction. However, the cost structure for existing products is largely locked in and cost reduction activities have limited impact. As companies begin to realize that the majority of a product's costs are committed based on decisions made during the development of a product, the focus shifts to actions that can be taken during the product development phase.

Target costing describes the costs that are expected to be incurred, to create a new product and how this will impact product profitability levels. By describing costs in a proactive and future-oriented manner, managers can determine how they should alter product designs before they enter the manufacturing process in order to ensure that the company earns a reasonable profit on all new products.

Methodology

Under the target costing methodology, a cost accountant is assigned to a new product design team, and asked to continually compile the projected cost of a product as it moves through the design process. Managers will use this information not only to make product alterations, but also to drop a product design if it cannot meet its cost targets.

There are four basic steps involved in target costing, which are Design and value research, Determine the target cost, Close cost gap and Follow-on activities. This article is going to focus on the first step and describe in detail as it is the most crucial step of the whole methodology.