Target costing

Defination

Involves setting a target cost by subtracting a desired profit margin from a target selling price

Closing (Minimise) the Target Gap

Reducing the number of component

Using cheaper staff

Using standard components whereas possible

Acquiring new, more efficient techniques

Training staff in more efficient techniques

Cutting out non-value-activities

Using different materials

to establish multi-functional teams consisting of

Marketing people

Cost accountants

Production Manager

Quality control professionals and others...

to be vital to design and manufacturing decision

Total target cost can be split into broad cost categories based on functions to ensure better control over costs.

The product has to be developed using Value Engineering Technique

to aim to reduce costs by

identifying those parts of a product or service

which do not value - where value is made up of both

Use value

Esteem Value

Emphasis

Place on planning and design stage to ensure the design is not expensive to make

Some decision can make the design stage

Component

Arrange cheaper staff

Acquiring new and efficient technology

training existing staff

Services

Major characteristics

Problems

Definiation

one party can offer to another that essentially and does not result in the ownership of any thing.

Its production may or may not be tied to a physical product

Are any activity of the benefit

Intangibility

the lack of substance

there is no substantial material

Inseparability/simultanelty

to be created at the same time as they are comsumed

Variability/heterogenlty

to face the problem of maintaining consistency in the standard of output

when the service are delivered humans, it is very difficult to ensure that the same service is provided in exactly the same way every time

Perishability

The services of a beautician, are purchased for a period of time

No transfer of ownership

Services do not result in the transfer of property. The purchase of a service

Customers expect it

to purchase a right to use facility

Intangibility

when services do not have any material content, it is not possible to reduce costs to target level by reducing material costs

Variability/heterogeneity

can differ every time it is provided, and a standard service may not exist

when services are variable, it is possible to calculate an estimated average cost

this is not specific and so not ideal for target costing

to be difficult to use Target Costing in service industries such as:

Mass service: banking sector, transportation, mass entertainment

Fast food, teaching, hotels and holidays...

Personal service: pensions and financial advice...