The Implementation of Target Costing in the United States: Theory Versus Practice

SUMMARY Target costing has been touted as a process that can significantly improve new product development results in the accounting, engineering, operations management, and purchasing literature. The target costing process considers the voice of the customer, incorporates earlier supplier involvement and concurrent engineering, utilizes cross-functional teams, and focuses on creating a good or service that is both desirable and affordable to the customer and profitable to the producing organization. Unlike previous studies, which have focused on Japanese firms, or used single case studies, this paper uses the findings from case studies of 11 organizations actively engaged in the target costing process. This paper explores how the target costing process is used in practice in the United States, comparing it with the popular theoretical model of target costing. It helps shed light on to target costing practices of U.S. and other Western firms, and highlights the often overlooked role of the purchasing function in successful target costing efforts.