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...