The Target Costing Approach (PDF)

Essay from the year 2007 in the subject Business economics - Controlling, grade: 1,3, European Business School - International University Schloß Reichartshausen Oestrich-Winkel, course: Vertiefung Controlling, language: English, abstract: 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 competition.
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 conditions,
costs represent a fundamental factor for the success of western companies. Accordingly,
management and employees have to fully exploit the potential that cost management
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 production
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 according
to market requirements.

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