Question

As a Cost and Management Consultant in the banking industry in Ghana, one of your highly esteemed clients, a top tier banking institution in Ghana has required of you to advise them as to whether target costing can be applied to the banking industry in Ghana. They further require you to advise them on what products or services can target costing be applied.

Answer 1

Target costing is a management technique with the main focus of cost reduction to a targeted amount. Under target costing the management first decide the targeted selling price and profit margin, then the derive the cost to fulfill this targeted selling price and profit margin. All the actions necessary to meet this targeted cost is then determined. The main reason behind target costing is the competiotion in the market, selling price is always the market price and only way out isto lower the cost.

Target costing can be applied to all sectors. So it can be applied to banking industry in Ghana as well. In banking sector target costing can be applied to reduce cost of providing services. This can be done by optimum utilization of bank resources like wages, ATM's, money tellers, credit awareness etc.

Target costing can be applied to most demanded services like credit cards, loans, ATM services, Internet banking etc. The bank should be able to sell the above services at same rate in the market, but should find ways to reduce cost to a target amount using standard costing. For instance, internet banking gateways can be outsourced on a central level to reduce costs, ATM's can be further expanded with tie ups with already running banks etc.