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

Target Costing is not a just method of costing , but rather a managment technique wherein prices are determined by market conditions , taking into account serveral factors , such as homogenous products, level of completion , now / low switching costs for the end customer , etc When these factors come into picture , managment wants to control the costs, as they have little or no control over the selling price

Target Costing = Selling Price - Proft margin

Key objective of target costing is to enble managment to use proactive cots planning , cost managment and cost reductions practices where costs are planned and calculated early in design and development cycles, rather than during the later stages of product development and production.

The price of product is determined by market conditions . The Company is price taker rather than price maker. In order to taking price from enviornment company should discuss with cross functional teams . sucha as engineering , marketing and cost accounting regarding price fluctuations , environmental factors .

Management should always touch with cross functional teams in order copup with current situvations in the market