Target cost accounting

from Wikipedia, the free encyclopedia

The target cost calculation (also retrograde calculation ; English: target costing or target pricing ) is due to its strong customer orientation less an instrument of the often company-centered controlling , but rather a holistic management method, which has proven itself as a strategic decision-making aid in highly competitive markets.

The strength of target cost accounting is particularly evident in the further development, differentiation and diversification of complex products and systems that are manufactured in medium lot sizes. Target costing is less effective when products are completely redesigned, as is the management of simple but mass- produced products. Target costing attempts to achieve customer orientation both in terms of price and in terms of product properties or product functions required by the customer. The concept was founded in the Japanese economy in the 1970s and, particularly in the 1990s, it was given a broad theoretical foundation in Western business administration .

origin

The basic idea of ​​target cost calculation can be traced back to the conception of the Beetle by Volkswagen as far back as the 1930s. Genka kikaku (原 価 企 画) was developed by Toyota in 1965 and has been used in Japanese companies since the 1970s. Theoretically, the concept was first discussed under the term target costing in the 1970s by the Japanese scientists Michiharu Sakurai , Toshiro Hiromoto and Masayasu Tanaka . The first German business economists to deal with this topic were Werner Seidenschwarz (1991; Target Costing - A Japanese Approach to Cost Management) and Péter Horváth (1993; Target Costing). Kaizen Costing is a further development of the concept .

Basic concept

  • From this customer or target price the target is margin (English: Target Profit ) subtracted. Hence the maximum permitted yield cost (English: allowable costs ) to achieve the target profit . These "permitted costs" are compared with the forecast standard costs (English: drifting costs ) determined in the company . Since the standard costs of a company are usually higher than the "permitted costs", target costs are set that are to be achieved in the joint process with the help of other business management instruments.
  • The guarantee of success of this system is that already at the beginning of the product development phase for the employees there are binding cost specifications with a controlling character, which can be significantly influenced there. In addition, the determination of the preferences is used to weight the costs against the importance of the various product properties and thus determine whether a product component or product function is overdeveloped or whether there is still a need for increased value. (Please see the application example on this complicated topic).

Target costing phases

In the business literature there are several approaches to subdividing the phases of the target costing process. The three-stage approach (target cost definition, split and achievement) serves as an illustrative example.

Target cost setting phase

The purpose of setting target costs is to determine the total costs of a product that may be caused in the company. The determination of the level of the target costs depends on the market situation and the corporate strategy . In the pure form and in the relevant literature, it is recommended to equate the target costs with the permitted costs, i.e. to pull the market into the company . The prerequisite for this is that the customer requirements prevailing on the market are known. However, according to detailed empirical reviews, this method is not used most frequently in either the German or Japanese economies. The other approaches find practical use for several reasons. For example, the market-into-company procedure is difficult to apply in the case of high-grade product innovations, since customers are often unable to express the benefits of the product in monetary terms. The other approaches are chosen far more frequently because the requirements of the market into company leave little leeway for the developers involved in the development process. The other methods set target costs that lie between the standard costs and the permitted costs. This ensures a cost reduction on the development side with realistic goals.

Further procedures:

  • The out-of-company approach determines the target costs based on the company's technical and business potential. The target costs are therefore very close to the standard costs.
  • The into -and-out-of-company approach combines market into company and out of company.
  • The out-of-standard costs approach applies reductions to the standard costs .
  • The out-of-competitor approach derives the target costs from the costs of the competition (for example through benchmarking ).

Target cost split phase

In this phase, the total target costs are broken down to a certain level in order to be able to effectively coordinate and achieve the target costs in the subsequent phase of target cost achievement. The target cost split is of very high conceptual importance for the application of target cost accounting for two reasons. On the one hand, the target costs give a realistic picture of the resource utilization of the functional areas in the company. On the other hand, there is the difficulty of ensuring a product functionality that is in accordance with customer requirements through a market-based allocation of resources. The cost split can take place at the component and functional level. The results can be displayed graphically using a target cost control diagram . The customer-rated benefits are compared with the standard costs of each individual component. Below is a clear example to explain.

Application example

  • Customers of a car brand are asked which properties of the vehicle are decisive for them. The result is that 50% of the value is defined by the performance , 30% by the sound and 20% by the driving comfort .
  • The market study shows an acceptable price for the car of 11,000 euros. With a fixed return of 10%, this results in a total permitted cost of 10,000 euros. As a result, the price for the service is 5,000 euros, the noise is worth 3,000 euros to the customer and the driving comfort is still worth 2,000 euros.
  • The development team has now determined that the engine contributes 50% to the power , 40% to the noise and 10% to the driving comfort . The chassis is responsible for the remaining parts.
  • For the developers, this means that the engine can be built at a cost of 3,900 euros ( ) per unit (including development costs - see full cost calculation ).
  • The aim is to match the products or services as well as possible to customers' needs before investment decisions are made, which are difficult or impossible to revision and sunk costs (English: sunk costs ) can cause.

Target cost achievement phase

The success of target cost calculation lies particularly in the phase of target cost achievement, in which a well-rounded and balanced, market-oriented and innovative concept is created, with which the Japanese economy and ultimately target costing were successful. This success presupposes that those responsible in the target costing process have the necessary instruments and methods to achieve the cost targets. This requires cost information aids that provide meaningful information on the basis of little input information in the early phases of the product innovation process. These aids or instruments to achieve target costs, which have a different effect on the analysis, planning and implementation phase, are diverse and can have a technological, product / process-related or organizational character.

rating

The main advantages and disadvantages in target costing are:

advantages

  • Early influence in the product life cycle

The necessity of cost management from the start results from the knowledge that a significant proportion (around 85%) of the total costs over the life cycle are already determined by decisions in the early phases. If a company manages to manage instruments early on and to include the market requirements in the product development process, there is great potential for cost reduction that does not necessarily have to go hand in hand with a reduction in quality.

  • High quality with lower average costs

Not only do many Japanese companies use target costing to constantly lower their average costs while quality increases. In order to avoid failure, it is essential to create the appropriate framework for sufficient development of the concept.

disadvantage

  • Use for radical product innovations

The question of the accuracy and reliability with which the strategic market price can be determined in advance, particularly for highly innovative products, has not yet been adequately answered.

  • No exact scientific limitation

Furthermore, there is no clear scientific definition of the phases of target costing. Science is more likely to discuss models that practice cannot or will not implement.

  • High planning effort

In the case of complex products, the effort required to determine the target cost shares can be very expensive, especially in the case of a large number of product functions or product components. This is why the method is particularly recommended for rather simple product designs.

Employee effect

The employee effect is viewed ambivalently : Target costing can result in a reorganization in the company. For example, in a multinational company, a certain task (for example an “engine at a cost of 4,900 euros”) can be assigned to different units, such as plants in different countries, at the same time. The effect on employees was seen by Grindt (1997) as a constant movement of “bidding and undercutting”. As a result of this reorganization of work, Cooper (1998) speaks of a new “concept of entrepreneurial rule”, puts the employees in competition with one another. Employees are encouraged to think entrepreneurially and, according to Glissmann (2001), find themselves in a process of “ self- reinforcement and self- acceleration ”: - a cost-effective offer by one unit of the company forces every other unit to act more cheaply by the other units - the faster a unit the result reached, the faster others have to reach it. This increases the pressure on employees, but frees up resources all the more.

literature

  • Werner Seidenschwarz: Target Costing - A Japanese Approach to Cost Management. In: Controlling. 3, 1991, pp. 198-203, Munich: CH Beck
  • Péter Horváth: Target Costing. Schäffer Poeschel, Stuttgart 1993.
  • Werner Seidenschwarz: Target Costing: market-oriented target cost management. Vahlen, Munich 1993.
  • W. Buggert, A. Wielpütz: Target Costing: Basics and implementation of target cost management. Hanser, Munich 1995.
  • C. Grindt: Bidding and undercutting. In: Codetermination. Magazine of the Hans Böckler Foundation . H. 3, 1997, pp. 43-36.
  • Robin Cooper: When Lean Enterprises Collide. 1998.
  • Ali Arnaout: Target costing in German business practice: an empirical study. Vahlen, Munich 2001.
  • W. Glißmann, K. Petter: More pressure through more freedom. 2001, ISBN 3-87975-811-5 .
  • Helmut Dinger: Target Costing: Practical application in the development process. Carl Hanser Verlag, Munich / Vienna 2002, ISBN 3-446-21900-5 .
  • Ralf Sauter: Market-oriented control of overhead costs in the context of target costing - a concept for the integration of target costing and process cost management. Frankfurt am Main 2002.
  • Jan Usadel: Target costing for TV production companies. Inst. For broadcast economy , Cologne 2002, ISBN 3-934156-45-2 .
  • Hans Ulrich Krause: Integration of process costing and target costing in the balanced scorecard concept. In: Uwe Christians (Ed.): Bankstrategien - Successful implementation with the balanced scorecard. Berlin 2004, pp. 65-88.
  • M. Griga, A. Kosiol, R. Krauleidis: Controlling for Dummies. 1st edition. Wiley-VCH, Weinheim 2005, ISBN 3-527-70153-2 , chap. 9: "How expensive can it be - target costing".
  • Andreas Schmidt: Cost accounting - the basics of full cost, contribution margin and budgeted cost accounting as well as cost management. 4th edition. Kohlhammer, Stuttgart 2005, ISBN 3-17-018741-4 .
  • Markus Blocher: " Market Testing " and "Target Costing" - the cornerstones of competitive public service management. In: Administration & Management. H. 4, 2007, pp. 199-204.
  • André Tamm: Critical analysis of selected approaches to long-term target costing. In: Controlling. H. 10, 2007, pp. 3-48.
  • Norbert Starck: Target Costing as an Interim Management Approach. (= Practical knowledge of interim management ). 2013, ISBN 978-3-00-043459-4 .

See also

Individual evidence

  1. ↑ Stefan Georg: Cut! Recipes for effective cost management . 1st edition. Vahlen, Munich 2016, ISBN 978-3-8006-5114-6 , pp. 140 .
  2. ↑ wiin-kostenmanagement.de