1.1 The organisation will have an early
external focus to its product
development. Businesses have to
compete with others (competitors)
and an early consideration of this will
tend to make them more successful.
1.1.1 Traditional approaches (by
calculating the cost and then
adding a margin to get a selling
price) are often far too
2.1 Only those features
that are of value to
customers will be
included in the product
2.1.1 Target costing at an early stage
considers carefully the product that is
intended. Features that are unlikely to be
valued by the customer will be excluded.
This is often insufficiently considered in
cost plus methodologies.
3 Early Cost
3.1 Cost control will begin much earlier
in the process. If it is clear at the
design stage that a cost gap exists
then more can be done to close it
by the design team.
3.1.1 Traditionally, cost control takes
place at the ‘cost incurring’ stage,
which is often far too late to make a
significant impact on a product that is
too expensive to make.
4 More Cost
4.1 Costs per unit are often
lower under a target costing
Target costing has been
shown to reduce product
cost by between 20% and
40% depending on product
and market conditions.
4.1.1 In traditional cost plus
systems an organisation may
not be fully aware of the
constraints in the external
environment until after the
production has started.
220.127.116.11 Cost reduction at
this point is much
more difficult as
many of the costs
are ‘designed in’ to
5 Reduced Time
5.1 It is often argued that target costing
reduces the time taken to get a product to
market. Under traditional methodologies
there are often lengthy delays while a team
goes ‘back to the drawing board’.
5.1.1 Target costing, because it has an
early external focus, tends to help
get things right first time and this
reduces the time to market.