The Target Costing Approach

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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