Target CostingBackgroundThe most important feature of any company is its ability to stay ahead of thecompetition. In the midst of a plethora of products and choices for the customer, itbecomes increasingly important for any company to make its products better, faster,cheaper and more innovatively. Increasing the efficiency of products has the two aspectsof cost and functionality attached to it. An efficient designing technique takes the costand functionality aspects into consideration during the early stages of product design.Such an approach provides us with the chance to concentrate our design efforts onimportant features and at the same time reduce the costs incurred on less importantfeatures. Target costing is like a planning tool that helps us to identify the features to beimproved and helps us in setting targets for designing and cost reduction. It is generallyknown that challenging goals lead to better performance than the general goal of doingones best [3].Frequent innovations characteristic of todays market have decreased the life ofnew or re-designed products and increased the costs of design. This made it essential forevery company to analyze its products feasibility and profit-making ability beforelaunching expensive design and manufacturing teams. Costs through the life cycle of aproduct require more attention as the costs of recycling, distribution, etc., keepincreasing. The following important features can be considered to summarize the marketcondition for the last two decades.Increased competitionIncreased costs of designDecreased product lifeIncreased non-manufacturing costsIncreased importance of customer needs and demandsLess-forgiving customers

The core concept of target costing is very straightforward. It is based on the logicthat a company should manufacture the products that yield the desired profit. If theproduct is not yielding the desired amount of profit, the design of the product should bechanged to obtain the desired profit or the product should be abandoned. Acomprehensive definition of target costing as given in [2] is mentioned below:The target costing process is a system of profit planning and cost managementthat is price led, customer focused, design centered, and cross functional. Target costinginitiates cost management at the earliest stages of product development and applies itthrough out the product life cycle by actively involving the entire value chain.