Target Costing Essay

Assuming that the company’s goal is to maximize profits, the current cost system is not an appropriate tool for strategic planning. The ambiguity of the overhead costs per product makes it difficult to accurately analyze the cause and effect relationships of changes and/or improvements to specific product line.

Target Corporation was founded in 1902 in Minneapolis as the Dayton Dry Goods Company, though the first Target store was opened in 1962 in nearby Roseville, Minnesota. Not until 1995, was the first Super Target was built. In 1999 Target launched their website Target.com. Target grew and eventually became the largest division of Dayton Hudson Corporation, culminating in the company being renamed as Target Corporation in August 2000. The Corporation became a major retailing power house with $52.6 billion in revenues from 1,397 stores in 47 states by 2005. Realizing a 12.1% sales growth over the past five years target had announced plans to continue its growth by opening

Nissan functions using these two major components. Service and manufacturing organizations face many similar issues that affect the end result of the operation. For example, both face issues of cost control, and create mission statements and a vision for how the organization will be run and perceived by customers. They however their operations answer different questions and formulate different strategies when it comes to planning and managing the way in which an organization is run. The manufacturing operations at Nissan are in contrast to that of TPS, they leveraged a regional, decentralized supply chain structure, but still imposed a strong central control and coordination in times of global crises. Service wise they maintained a flexible organization by integrating and embracing diversity into their team. These two operations gives value to the customers and meets the organizations overall objective of customer

Life cycle costing is popular in lowering the costs that might have been spent in the future. The process helps to generate more revenue as it cuts on the cost the company is likely to incur.

Cost-plus pricing lead to a complicated pricing structures, since distributors and customers negotiated separate product prices from manufacturers, introduced incentives, let prices vary from customer to customer, covered some products by contract and some don’t etc.

Firms use cost-plus pricing in order to cover their operating costs. Cost-plus means they can increase the price to their customers with whom they have contracts when the operating costs rise. Operating costs can rise for many reasons and cost-plus pricing allows firms the flexibility to manage operating costs. This flexibility is often needed when the price of a service or good is not known or hard to predict in advance (Magloff, 2011).

In order for a company to succeed and be successful, it is very important for the company to understand the difference between profit and cost of goods. There are costing tools that can help a business figure out what the cost of product is during the manufacturing process. These tools are beneficial for a company to figure out how much profit can be made. These tools take the cost of manufacturing the unit and subtract it from the sale price of the product. Having this information, the profit per unit, is very beneficial for a company to know which products they should produce more heavily, or which ones to eliminate. I want to discuss two costing methods that are beneficial to a

The procurement section of Target’s supply chain is an essential part of how it replicate costs to customer requirements. The overall affiliation between customer fulfillment and the supply chain are closely linked to products that are designated based on benchmarks that have been appropriately matched to target costing structured with market criticism and feedback provided. When focusing on purchasing products to sell to customers, the organization selects and processes the best option that best matches Target’s

According to Vivian Guo (2012), Cost-plus pricing is the simplest and oldest method of determining price and provide the basis for doing business. For calculating this price we need add together the direct labour cost, direct material cost, selling and administrative costs, and overhead costs for a product. Then we need to add to it a markup percentage (AccountingTools, 2016). The pricing formula is:

Process costing is an easier system to use when costing homogenous products compared to other cost allocation methods. Each process applies direct materials, labor and manufacturing overhead to the production cost total. Management accountants take the total number of goods leaving the process and divide the total process cost by this number. This creates a simple average cost for each item produced. Another advantage is that business owners use process costing because it creates a flexible production process. Companies needing to refine their process can simply add or remove a process as necessary. This also allows companies to lower their production cost for each good. Adding a process allows companies to produce slightly different goods or improve product quality. This flexibility ensures companies can produce at the most competitive cost in the economic marketplace. Also process costing provides an approach to allocate costs to

1. According to a major economics consulting firms, Fiat`s ¨South American operations are the jewel in the Italian company`s global operations¨. Fiat has plants in Brazil and Argentina, and Brazil is the biggest market, well ahead of its home-country market. In 2011, with the Chrysler venture taking up more and more of the firm`s attention – and as European sales suffered a steep decline – rumors began to circulate that Marchionne might move Fiat headquarters from Italy to the United States. Discuss Fiat´s takeover of Chrysler as part of strategy to transform itself from international business into a multinational or global business

Ghosn’s plan to combine, centralize, and globalize Nissan and Renault’s parts procurement would cut costs by 20 percent! Before this change, Ghosn estimated Nissan’s parts procurement costs were around 10 percent higher than Renault’s. To accomplish his goal, Ghosn had to prove that the precious keiretsu system of Japan was promoting

3.1 Target costing: It is the estimated price for a product that customers will be willing to pay. The estimates are made on an understanding of customers’ perceived value for a product and competitors responses. Example is in Appendix5. Benefits of target costing at the distribution centres are like helping identify value and non value activities, helping cut costs (material, handling, transportation, installation cost),Increasing

The company uses target pricing for the parts they purchase from suppliers. To Honda, customer satisfaction is top priority which they accomplish through suppliers competitiveness in quality, cost, delivery, development, and management. Honda gives its suppliers target costs and it reduces the cost through own ideas, technology, and improved productivity. Exhibit 1 illustrates Honda’s supply chain.

The characteristics of the global motor vehicle industry are a boom in certain places and a bust in others all due to economic conditions in different nations. Four years after tow of Detroit Michigan’s big three went into bankruptcy American car makers are going “full throttle” with sales in August hitting an annual rate that if substantiated can take them back over 16 million and that is a rate that was last hit before the economic crisis and 80% higher than 2009 when GM and Chrysler went into bankruptcy. The opposite is happening in Europe being in its sixth year slump now and with a weak economy, high petroleum prices and an aging