Decision Control of Products Developed Using Target Costing

Robert Kee; Michele Matherly

doi:10.1016/S1474-7871(06)15012-1

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Advances in Management Accounting

ISSN: 1474-7871
Series editor(s): Professor Marc Epstein and Professor John Y. Lee

Subject Area: Accounting and Finance

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Decision Control of Products Developed Using Target Costing

Document Information:
Title:	Decision Control of Products Developed Using Target Costing
Author(s):	Robert Kee, Michele Matherly
Volume:	15 Editor(s): Marc J. Epstein, John Y. Lee ISBN: 978-0-76231-352-5 eISBN: 978-1-84950-447-8
Citation:	Robert Kee, Michele Matherly (2006), Decision Control of Products Developed Using Target Costing, in Marc J. Epstein, John Y. Lee (ed.) 15 (Advances in Management Accounting, Volume 15), Emerald Group Publishing Limited, pp.267-292
DOI:	10.1016/S1474-7871(06)15012-1 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Article type:	Chapter Item
Abstract:	For firms using target costing, separating decision management from decision control helps to minimize the agency costs incurred throughout a product's economic life. Prior literature focuses on decision-management issues related to target costing, such as new product development (i.e., initiation) and production (i.e., implementation). In contrast, this article highlights the decision control aspects of target costing, which consist of ratifying product proposals and monitoring the product's implementation. While products initiated with target costing are chosen because they meet their allowable cost, product ratification requires assessing how well products contribute toward strategic goals, such as improving the firm's market value. To facilitate the ratification decision, this article develops an equation for determining a product's net present value (NPV) based on the same accounting data used during the initiation process. The article also describes monitoring a product's implementation through periodic comparisons to flexible budgets and a post-audit review at the end of the product's economic life.