High visible cost targets for their new product is why companies use target costing.The process of target costing begins when when management selects a target cost for a product, like a new car for a company. Next, A cost estimating group will dissect a target cost for the product as a whole into cost targets for subassemblies and individual component parts, like parts for the car. Usually there will be a gap between the target cost and cost production for the new product. This gap is important to target cost as described in the article, "Closing the gap through cost reduction is central to the target costing process. This is accomplished through cross-functional target costing teams, which analyze the product's design, raw material requirements, and manufacturing processes to search for cost savings opportunities." ( The Best Practice In Target Costing.) Remember cross functional teams are a key principle to target costing. In the end the study came up with the companies that, according to these principles and practices, had the best practice of target cost. The first being The Boeing Company, Second Caterpillar, Third DaimlerChrysler, and FourthContinental.
- Fall '14
- Accounting, Cost overrun