Research on target costing: past, present and future

Abstract

Although target costing is an extensively studied topic in the management accounting literature, a holistic investigation into its methodological development is missing. Therefore, an extensive state-of-the-art analysis is conducted that focuses on articles in highly rated journals. We determine nine distinct research streams that encompass further developments of the traditional target costing methodology. By grouping these streams into three research scopes, we outline the achieved progress as well as remaining tasks for further enhancements. Due to the abundance of these tasks, we align them with six future themes of management accounting that we identified as being particularly influential to target costing. As a result, six promising topics for researchers to advance target costing are determined. Additionally, our findings reveal to managers of which issues they should be particularly aware with respect to the performance of their target costing processes.

Target costing

“…Instead of considering costs as the outcome of a project, they are considered as a significant guidance tool in the product development process (Zimina et al, 2012). Ahn, Clermont, and Schwetschke (2018) write that the literature contemplates three main characteristics of target costing. Market orientation is one of them, as market cost information takes the central role of cost-effective product development.…”

“…Therefore, it would be important to invest in a software to accurately measure costs in the production of services, especially if the company is to adopt the target costing methodology that requires significant computational resources, as emphasized by Santana et al (2016). In addition, it would be essential to retain a specialized professional to assist the Accountant in cost control, because, as stated by Ahn, Clermont, and Schwetschke (2018), joint efforts of skilled people are necessary to achieve the desired costs. This could favor the manager's decision making, help improve competitiveness, and seek to achieve the desired profitability goals.…”

Cost reduction struggles in sister companies

“…Market orientation, early cost management and cooperative efforts are main characteristics of target costing (Ahn et al, 2018). Firstly, market cost information should be collected as a central role for cost-efficient product development (Everaert and Swenson, 2014).…”

“…Addition to new launches, kaizen contributes to cost reduction in market phase for already existing products. Thus, kaizen costing is also suitable for the products whose functionality is already defined and cannot be changed easily (Ahn et al, 2018). According to Cooper (1996), kaizen costing activities can may have an influence only approximately 10% of a product's costs, on the contrary to approximately 90% influence in target costing based on the results of limited influence on product design.…”

“…First one is the concept of steady cost optimization, and the second one is the application for a product that is already introduced in the market due to strategic reasons. This means there is a standard cost, and it is below the target cost, but kaizen costing aims to reduce the level of standard costs (Ahn et al, 2018). Brunet and New (2003) worked on 11 Japanese steel and automotive companies in order to observe the kaizen contribution of personnel.…”