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Beyond Performance Management: Why, When, and How to Use 40 Tools and Best Practices for Superior Business Performance by Steve Player, Jeremy Hope

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24

TARGET COSTING

What is this practice and how effective is it?

Japanese lean manufacturers have used target costing for many years to set prices and manage costs. There are many differences between “target” costing and “standard” costing. Whereas standard costing is used to calculate unit costs and value inventory (cost-led pricing), target costing is used to set prices over the lifetime of a product family and then set a target cost that managers must stay within to achieve the return on capital required (price-led costing). We will examine these differences in approach in more depth.

Alternative names and related topics: lean manufacturing; product costing; activity-based costing; profit planning

The basic principle underlying most of the ...

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