Fig. 5 shows the specific roles of purchasing for each of the six firms that follow an ‘‘institutionalized’’ approach to target costing. Note that three of six organizations dedicate buyers to new product/service development. During Step 4, both cost accounting and supply management play a key role in dividing up target costs among various activities, components and materials. Supply management often works closely with the cost accounting/cost estimating function on verifying historical data, creating estimates, and working with suppliers to get up-to-date cost information. This step is one of the key points of interface between purchasing and accounting during the target costing process.
In Step 5; accounting passes the responsibility for achieving target costs to those with direct line responsibility, such as purchasing, manufacturing, R&D and marketing. While accounting continues to play an active role in supporting the analysis, the real work of purchasing and the supplier takes place here. At this point, trade offs, changes and improvement activities are coordinated in order to achieve the target cost. This is an iterative phase, where processes, designs, materials, and even concepts may be modified, each affecting the supplier and purchasing firms. Some of the methods to achieve target cost during Step 5 are listed in Fig. 6. While Fig. 4 shows target costing as a sequential process, activities and modifications that occur in Step