COST MEASUREMENT AND COST MANAGEMENT IN TARGET COSTING

Firms are coping with a competitive scenario characterized by quick changes produced by internationalization, concentration, restructuring, technological innovation processes and financial market crisis. On the one hand market enlargement have increased the number and the segmentation of customers and have raised the number of competitors, on the other hand technological innovation has reduced product life cycle. So firms have to adjust their management models to this scenario, pursuing customer satisfaction and respecting cost constraints. In a context where price is a variable fixed by the market, firms have to switch from the cost measurement logic to the cost management one, adopting target costing methodology. The target costing process is a price driven, customer oriented profit planning and cost management system. It works, in a cross functional way, from the design stage throughout all the product life cycle and it involves the entire value chain. The process implementation needs a costing methodology consistent with the cost management logic. The aim of the paper is to focus on Activity Based Costing (ABC) application to target costing process. So: -it analyzes target costing logic and phases, basing on a literary review, in order to highlight the costing needs related to this process; -it shows, through a numerical example, how to structure a flexible ABC model – characterized by the separation between variable, fixed in the short and fixed costs - that effectively supports target costing process in the cost measurement phase (drifting cost determination) and in the target cost alignment; -it points out the effectiveness of the Activity Based Costing as a model of cost measurement applicable to the supplier choice and as a support for supply cost management which have an important role in target costing process. The activity based information allows a firm to optimize the supplier choice by following the method of minimizing the total cost of ownership (TCO). Moreover the activity based analyses reveals the opportunities for rationalizing the supply related activities and containing costs and it enables the effective involvement of the supplier in the process of target costing when he provides activity based information on the costs sustained to produce the product/service: the purchaser can evaluate the impact, in terms of cost, of the activities requested of the supplier and, as a result, he has the chance to rationalize these activities by reducing their number or intensity and enables the effective involvement of the supplier in the process of target costing. The paper gives a contribution in the advancement of costing methodologies applicable to the target costing, proposing the use of a flexible model that supports the decision process according to different time horizons so that effectively supports target costing. The model is suitable for production characterized by high complexity in terms of number and intensity of activitie