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Essay / Research Paper Abstract
Target costing is an accounting concept that has found its
way into the world of organization management and has a certain value in
explaining the development of supply and demand economics into the next
millennium. This 5 page paper explores the basic concepts, uses and strengths
of the process. Bibliography lists 5 sources.
Page Count:
5 pages (~225 words per page)
File: D0_KTtarcst.rtf
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Unformatted sample text from the term paper:
to accounting practices within industry. The idea is basically the same: establishing a maximum amount which the buyer is able to spend in order to maintain solubility. In
business, this means that the components of a product must meet a target cost in order to stay within acceptable limits in order to maintain a specific cost to the
consumer (Ellram, 2000). "The target cost is a financial goal for the full cost of a product, derived from estimates of selling price and desired profit (which top management
sets on the basis of firm strategy and financial goals). Product selling price is constrained by the marketplace and is determined by analysis along the entire industry value chain
and across all functions in a firm" (Shank and Fisher, 1999, p. S3). The price tag that is seen on a product comes from a process that has
traditionally been defined by the cost of production, added to the expected profit. "In target costing, cost becomes not the outcome but an input in the basic profit equation
of revenue minus costs. It is an opportunity to develop a rational cost-reduction objective, to strive toward corporate profit goals" (Anonymous, 1999, p. 6). The idea behind target
cost is to maintain a limit on the cost of production so that the cost to the consumer can be held within limits set by the consumer rather than by
what the market will handle - or based on supply and demand. The lowest cost, with the highest profit margin, for the highest quality becomes the goal. The
main difference is that the cost to consumer is the defining element, rather than the profit margin. The system of target costing came to the United States (as
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