Managerial implications of target costing

The target costing method works “backward” from traditional cost‐plus methods and begins with a targeted sales price for a product. This price is set based on what the customer is willing to pay. It considers not only the preferred current selling price but also the later life cycle pattern of price...

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Bibliographic Details
Published in:Competitiveness review 2005-03, Vol.15 (1), p.49-56
Main Authors: Helms, Marilyn M., Ettkin, Lawrence P., Baxter, Joe T., Gordon, Matthew W.
Format: Article
Language:English
Subjects:
Competitive strategy
Lifecycle costs
Pricing
Supply chain management
Target costs
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Summary:The target costing method works “backward” from traditional cost‐plus methods and begins with a targeted sales price for a product. This price is set based on what the customer is willing to pay. It considers not only the preferred current selling price but also the later life cycle pattern of prices. This technique has key managerial implications. This article considers these implications along with implementation guidelines. Examples of industries successfully using target costing are included. Ongoing controversies concerning where the techniques can best be used are discussed. Further considered are international differences in target costing as well as challenges of global outsourcing along the supply chain. The article ends with implementation challenges, significance for practice, and suggestions for future research.
ISSN:1059-5422
2051-3143
DOI:10.1108/cr.2005.15.1.49