A Market based approach in cost management: Target costing

SUMMARY A MARKET BASED APPROACH IN COST MANAGEMENT: TARGET COSTING Keywords: Target Costing, Kaizen Costing, Cost Management, Market Based Costing, Life Cycle Costing, Value Engineering, Simultaneous Engineering, QFD, BSC, ABC, JIT,TBM It has been stressed that in today's high-tech production environment, traditional accounting methods are unable to produce necessary financial information as fast, sufficient, and accurate as the global competition requires. According to the literature, insufficiency of traditional methods has been stated since the 1950s and hence, this has forced the management to develop faster, more sufficient and more accurate information generation methods. Together with the advances in technologies, expectations of consumers have also continuously and rapidly been changing. This, considerably shortens products' life-cycle, thwarts mass production, hence, prevents the industrial firms to create economies of scale. Consequently, the share of fixed cost within the unit cost has been increasing. Moreover, differentiation of consumer expectations forces the firms to develop new products which further increases R&D expenditures. Escalating costs on the one hand decreasing product prices on the other, create additional problems for traditional cost and management accounting methods which forces the business to create new methods of accounting for the sake of remaining competitive. 'Target Costing' is one of those new methods. This study is a modest attempt to introduce Target Costing method to the visions of the academics and practitioners. The aim of this study is to investigate the adaptability and practicability of this method to Turkish accounting system. In this vein, first, a comprehensive literature review is done. Second, the necessity of Target Costing method, its historical background and theoretical framework is discussed. Third, application of Target Costing in various countries such as Japan, USA and Germany is investigated, its comparison with other cost accounting methods is made and its strength and weaknesses are assessed. Furthermore, some case studies about Target Costing applications of some firms from different countries are examined and its practicability is discussed. Finally, other necessary and complementary techniques for a successful application of Target Costing are investigated. XVI