Question

To implement target costing for a new product companies often set up cross functional teams with members from engineering, marketing and cost accounting. Why is a cross-functional team desirable when implementing the target costing approach?

Answer 1

• The target cost is dependent on price, and marketing staff is required to determine product features and price.
• Engineers are required to determine efficient production methods with the given product features.
• Cost accountants are required to estimate costs given the production process.
• A cross functional team helps to ensure good communication between these various parties, and increasing the likelihood that a product will be put into production that can be produced for the target cost.
• It is clear that 80 percent of a product’s costs cannot be reduced once it is designed.
• The main reason for this thing is that product features drive costs.
• This is because many companies use target costing that is an integrated approach to determine product features, product price, product cost, and product design which helps ensure a company will earn a reasonable profit on new products.
• To implement target costing for a new product, companies use a cross functional team because it provides good communication among the parties involved in the development of product and pricing process.