The Target Costing Process
The previous example based on Boards and More, Inc., is aimed at considering activities of existing , established processes. Target costing is a business proess aimed at the earliest stages of new product and service development , before creation and design of production methods.It is a process driven by the customer,focsed on design,and encompassing the entire life of the product. The objective is to create a production process that provides adequate profits. By focusing simultaneously on profit and cost planning over the entire value chain, orgnizations are able to tap synergies among the various value chain parts. Consideration of the entire value chain at the product development phase is critical because research demonstrates that 80 percent of production-related expenses are committed once the production process begins. These committed resources cannot be changed later without great cost to the company.