Best Practices In Target Costing Accounting Essay


1. Full reference details for article (using Harvard referencing style)Provide enough information about the article to enable readers to find it. Make sure that you include the author, title and when and where the article was published.

Swenson, D, Ansari, S, Bell, P & IL-Woon, K 2003, 'Best practices in target costing', Management Accounting Quarterly, March, pp. 2-17, viewed 25 March 2010,

2. Purpose. State what the author was trying to achieve in the article. Was the purpose to inform, persuade, compare two views, argue a point, publicise a piece of research or something else? Here, it is useful to consider the publication that the article appeared in and the readership of that publication.

To start of with, this article talks about target costing and its principles and process adapted by few companies which has proven to be very effective in terms of cost control and profit enhancement. The authors are trying to convey a message that different ways of target costing techniques have been applied in a variety of industries followed by the level of success and measurable improvements achieved along with the factors that influenced the success of these applications. The research began with a survey conducted by The Consortium for Advanced Manufacturing, the American Institute of CPAs and the University of Akron analysing the results and selecting four big companies as having best practices in target costing. The main purpose of this article was to inform the readers about the benefits of applying target costing system which the authors are clearly able to demonstrate. However, there is no purpose of persuading the readers to engage in such system. The authors are only demonstrating the survey results and analysing the information for the readers to gain some knowledge and exposure about target costing system. A similar prospect has been approached by Ewert (1999) in his article 'Target costing, co-ordination and strategic cost management'  who analyses the strategic dimensions added to the problem of cost management. He evaluates distinct characteristics of Target costing on the basis of its market orientation and its interaction with other long term affecting factors. The readership of his publication was conveyed a message that target costing has many advantages over other systems and that it should be implemented to reduce cost effectively.

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3. Overview. Provide an objective overview of the topic and the main points the article covers, in the order that the author made them.

The whole objective of target costing is that it's relatively new and is being classified as a best practice in some industries. The authors have drawn up extensive results of the survey which is discussed in-depth. There are a number of main points mentioned in the article. Some of them are target costing principles, target costing process, target costing enablers, product development and supply chain. The article also refers to an example of target costing applied by one of the companies named Caterpillar and also incorporates numerous examples of value analysis.

The authors describe target costing as a systematic process of cost management and profit planning. They provide six key principles of target costing and briefly describe them individually evaluating the important points and how each of these principles is consistent and interrelated. The next point mentioned in the article is about target costing process. The authors here are giving examples of companies who have frequently maximised cost control and enhance profit improvement by setting up relatively aggressive targets. The process begins with the top management establishing a target cost for new product (e.g. Chrysler Neon) which is then de-composed as a whole into cost targets for individual component parts example engine, seats etc.

Moreover, the next important point mentioned in the article is target costing enablers. The authors visited the four companies fulfilling their objective of documenting 'best practices' in organizing key elements of target costing. At each company, target costing was supported by a matrix organisational structure followed by an example in the U.S where operations for DaimlerChrysler had five platform teams each including members from design engineering, manufacturing engineering, purchasing, production and finance. Performance goal and cost objectives of each platform team were an important factor which reflected team members' annual performance review. Also, there was a 'toolbox' approach of management at DaimlerChrysler which reduced cost and improved productivity. The toolbox included value engineering, value analysis, design for manufacturing, paper kaizen and lean manufacturing and each of this was implemented through workshops composed of multifunctional teams.

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Moving on, Product development process is the next point which the authors try to explain by giving some examples of target costing approach and the benefits of it. The Boeing Company adapted target costing system which tried decreasing customer necessities and integrating changes that will supply value to a large customer base. The Boeing Company designed a new product to satisfy an objective of saving money for them and its customers. Through target costing, the costs associated with adding new parts or changing aircraft configurations must be met by consumers willing to pay the incremental costs of the change. Therefore, target costing plays an important role in designing new products for a change.

The next point mentioned in the article is about supply chain. Some of the best practice companies totally depend on cost saving opportunities from its supply chain to meet target costs. Supplier's play a vital role in achieving target costing goals. Few companies such as DaimlerChrysler and Continental Teves evaluate the performance of their suppliers on yearly basis based on their cost reduction on annual sales. Cost reduction simply means that any supplier gives ideas to the buying companies which will result in lower cost and benefits for the company.

The authors have thoroughly researched well and the survey results truly shows that target costing is effective to an extent and that it has proven to be effective for few companies who has implemented it.

B. THE CRITIQUE: Give your view of the text, considering some or all of the following factors: What was the purpose of the article and where was it published? Did the author achieve his/her aim? Was it written in an appropriate style? Is it clearly organised and easy to understand? Have views or claims been supported with evidence? Does the reasoning seem logical? Has the topic been dealt with in sufficient depth?

This article was published on internet under the title 'Best Practices in Target Costing'. It was also included in 'Contemporary Management Accounting' textbook. The main purpose of this article was to inform the readers about target costing (based on the survey) in more detail and also the advantages of it followed by few examples. It was well written in an appropriate style with a lot of simplicity of understanding the context of the central overview of target costing system. The use of sub-headings and points highlighted in bold maximised the capacity to understand how things work and what methods are being applied in regards to this context. It also made it easier for readers to refer back to some important highlights much quickly and effectively. Also, the use of real corporate examples and other sources were highly demonstrated in an appropriate manner.

Furthermore, the authors have somewhat achieved their aim on this article, however there are a few points which are missing based on the research from other sources on target costing. To start on this, some of the views/claims of this article are not supported quite well and also it makes readers wonder why certain things don't have disadvantages about the product development or supply chain as part of the article. According to an article 'Target costing can boost your bottom line' by Boer (1999), he clearly criticizes the effect of design decisions in product development as a complexity which carries 'downstream' and has poor results. He concludes that getting involved in product development is not an easy task of integrating target costing method. He supports his statements by pointing out a few downstream results which are: the amount of work and labour cost increases, quality may be poor as complex products are hard to assemble, it takes longer to train customers to deal with complex products and also additional parts are needed for extra storage of inventory. These results are clearly evident that product development process is not an effective feature of target costing and has got some major disadvantages which are not mentioned in this article by the authors.

Moving on, another example is shown in an electronic journal by Crow (2002) who is the president of DRM associates in management consulting and education firm. He points out a few steps required to install a complete target costing approach within an organization. With the use of diagrams, he is able to compare traditional cost management approach and target cost concept. He evaluates how each system is functioned and what return it contributes towards the companies. Furthermore, product development is mentioned here again.

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The author focuses more on actions that can be taken during the product development phase instead of focusing more on cost reduction. As most of the products cost are influenced by decisions made during the development of a product, some engineers are committed to focusing on satisfying customer's requirements. The author concludes here that its common for the product costs to be higher than desired because it's a dependant variable that is influenced by decisions made about products functions, quality and performance capabilities. Thus, these information is not discussed in detail in the article.

However, the authors have been successful in evaluating the reasons of implementing target costing system and its core factors but there are a few things which need wider attention to the readers. The topic of target costing hasn't quite dealt with in sufficient depth. The authors have been successful in describing what target costing is all about and why there is an increasing need for it, but in an article written by anonymous, he describes and interpret different scenarios of target costing in an international company by pointing out few advantages and at the same time, disadvantages. This little peace of vital information is missing in this article. There are certain factors that promote target costing and certain things that can pose some problems. One of the disadvantages of target costing is that the stress is too high on the design team of companies using target costing approach. Secondly, producers might make use of cost-based target costing to compress the profit margins of suppliers, therefore getting materials at the lowest price possible. This over-emphasis on cost cuts often blind producer to the real meaning of target costing. Also, design teams can have some difficulties in meeting cost target from time to time which can lead to poor use of time and effort. An example of an international manufacturing company is shown that promoted the use of target costing but at the same time, confronted some problems too. These manufacturing companies misuse target costing and make the mistake of shrinking the supplier's profit margins just like it was mentioned previously. As in certain countries where the cost of living is high, manufacturers should understand that their suppliers need to earn enough in order to survive. Therefore, the target cost set should be reasonable or else the design team will suffer pressure to push down cost and might compromise quality which is not what target costing hopes to achieve. All this piece of information is available to an extent in this article but the authors are missing some few important points which was demonstrated and discussed in the articles mentioned above.


Your conclusion. Make your position on the article's merit clear to the potential reader. e.g. 'This article provides a useful background to…' or 'In this article, the author adds a new perspective to the debate on…'

On the whole, this article is a sincere effort by the authors providing some useful background of target costing information to the readers with the demonstration of important factors. It really goes more in detail with the core examples of target costing but would have been better and effective if more information was researched in depth along with the survey in accordance to other important sources.

C. REFERENCES: You must include all the references you have used in your assignment using the Harvard referencing style. Full details of the referencing system can be found at:

Swenson, D, Ansari, S, Bell, P & IL-Woon, K 2003, 'Best practices in target costing', Management Accounting Quarterly, March, pp. 2-17, viewed 25 March 2010,

Ewert, R & Ernst, C 1999, 'Target costing, co-ordination and strategic cost management', European Accounting Review, Vol. 8, Issue.1, pp. 23-49, viewed 25 March 2010,

Boer, G & Ettlie, J 1999, 'Target costing can boost your bottom line', Strategic Finance, March, pp. 1-4, viewed 26 March 2010,;col1

Crow, K 2002, 'Target Costing', DRM Associates, viewed 26 March 2010,

Baxter, J 2005, 'Managerial implications of target costing', Competitiveness Review, viewed 26 March 2010,