Target Costing - Article Example

Free

Extract of sample
Target Costing

One of the ways is that there is proactive focus on cost. The strategy once applied effectively, some of the unnecessary costs are thereby eliminated. The strategy determines in advance the costs to be incurred in a production process. Once they are determined, some of the costs that may have been incurred in a firm hence interpreted as loss are dropped. The firm will not incur the costs and will save the funds for other profitable ventures. Many firms obviously view the concept of cost as a very complex one as it is what reduces the profit. However, they strategize by first formulating the design hence work out the cost later. Target costing works from the selling price backwards to the cost hence the firm’s profit margin is unaffected therefore; the targeted profit of the firm will still be obtained. The profitability of the venture will continue being derived. The second way in which profitability is ensured is that with target costing there is the aspect of the production processes improvement. The tool operates with inclusion of teamwork. A team dedicates its own effort towards achievement of the outlined goals and objectives.
Some of the ways are through Proactive focus on cost, team spirit, competition and improvement in production process. Such a firm will be able to make more profit with cost reduced. ...
Download paper

Summary

Target Costing
The aim of each and every business is to make profit once commenced. One factor that affects the profit margin of an enterprise is the concept of costs and many firms are fully aware of the concept…
Author : foconner
Download 0

Related Essays

Traditional accounting pricing tools are not fit for the 21st century
This paper illustrates that since the production of the goods had started the price has been a great matter of concern for both the sellers and buyers. The producers and sellers have been coming up with different pricing techniques and strategies that they found perfect in the scenario they are working. With the change in time and modernization of the society, it has become evident for the sellers to adopt new and better pricing strategies to compete well in market and keep up with the expected prices of consumers as the consumers are always having a wider choice of companies to buy the...
18 pages (4518 words) Essay
Strategic Management Accounting
Historically the role of management accounting conferred to operational level budgeting, target setting and control with little or no influence towards strategy development. With the passage of time, this trend has been changed because of Strategic Management Accounting as nowadays this trend and focus has been driven towards strategy formulation and development (Kader et al, 2006). This strategy formulation and development makes management accountants to participate in formulating strategies within the organisation and this practise has been highly encouraged because these management...
7 pages (1757 words) Essay
target costing
Thus the cost has never been a primary consideration for the company. But the changes which aroused the competitive environment of the company were cost competition and product innovation with its competitors. The invention of the new segment related to the sports utility vehicle and other market niches are the other factors of the competitive environment for Mercedes. Answer 2 The main changes that took place in the worldwide luxury automobiles were the introduction of the new products in the market which led to the rise in the competition of the company; partnering with the suppliers;...
4 pages (1004 words) Case Study
Management Accounting assignment
Cost is the most important factor which influences the management decision. The management needs to maximize its cost by different policies such as just in time, target costing etc but should not compromise on the products quality (Straus, 1989). Target Costing: Target costing is one of the new costing techniques used by managers to minimize its cost effectively. Target costing is cost based pricing. Target costing enable the managers to manage the business most effectively in a competitive market place. It enables the managers to plan and manage the cost in the early stages of design and...
5 pages (1255 words) Assignment
Process Costing
Companies need to know the amount of money spent on their products before they can set appropriate selling prices. Firms that fail to accurately determine process costs can find themselves setting too low prices that lead to losses or too high prices that scare away customers. Accurate process costing helps to set right prices or adjust the process if costs cannot allow reasonable pricing. Importance of the Study Although many researchers have contributed to this topic, little can be seen in terms of standardization of the approaches of determining process costs. This paper is a literature...
4 pages (1004 words) Essay
Process Costing
In the contemporary period, process costing is one successfully adopted accounting methodology in organizations. Organizations use process costing for effective cost calculation, especially at times when other costing models (job costing or activity based costing) are futile and not producing desired outcomes. Process costing is applied when activities like cost accumulation, cost assignment and cost assessment are to be performed and conducted. When both cost of fixed and variable natures are to be calculated then process costing comes into organizational application.
...
7 pages (1757 words) Essay
Intermediate Management Accounting past paper
Nevertheless, the target profit margin is seen to rise substantially from a low of -0.004% in year one to 10.25% in year three. (b) Issues facing firms like KZ in making decisions on the costs to cut in order to meet the specified target income level. Costs relevance: It could be difficult for firms like KZ to associate all the costs involved to products. This makes the firm continue incurring costs that do not directly involve production hence eating on the margins. Cost classification: The firm has not classified its costs appropriately. For instance, marketing costs are classified as fixed...
5 pages (1255 words) Essay
Got a tricky question? Receive an answer from students like you! Try us!