Hitting the target. (analysis of target costing)

Management Accounting (UK), January, 1995 by Booth, Rupert

Target costing is one of the most proactive uses of costing since other techniques tend to use the past or present as reference points. Activity-based costing can help contribute to target costing by allowing indirect costs such as support functions to be built into the setting of targets. Profit predictors can be developed for product designers who can work on products which keep down total costs rather than simply cutting direct costs.

Of all the uses of costing, target costing is perhaps the most proactive. Other techniques are concerned with looking backwards in time to calculate product cost and customer profitability or preparing plans for the future, though largely based on assumptions related to the current organisation structure. Target costing, however, is...

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