Academic journal article Asian Social Science

Target Costing Evolution: A Review of the Literature from IFAC's (1998) Perspective Model

Academic journal article Asian Social Science

Target Costing Evolution: A Review of the Literature from IFAC's (1998) Perspective Model

Article excerpt


During the last two decades, with increasing competition in highly changing business environment, literature has cautioned against the efficiency and capability of traditional management accounting techniques in providing sufficient information needed for decision making. In coping with continuing changes in business environment and increasing pressure of competition, cost and management accounting techniques have been changed and new techniques have been developed, especially in the last two decades. This is to enable organizations to stay competitive by producing better quality products at lower costs. As Target Costing (TC) has been innovatively adopted to achieve this objective by Japanese companies in the 1960s, this paper attempts to show the historical development of TC. Premised on the review of forty (42) refereed journal articles published in various accounting journals during the periods of 1984 to 2013, this paper shows how, over times, the TC practices have undergone a three-phase evolution from cost reduction and control to cost and profit management and to quality and functionality improvement. Specifically, the paper examines the evolutionary facet of TC by using the 1998 IFAC-based management accounting evolution framework.

Keywords: cost accounting, cost control system, management accounting, target costing evolution

1. Introduction

Increased pressure of customers' demand coupled with increased competition among manufacturers in the last two decades formed the basis of cost and management accounting development. Numerous advanced cost and management accounting techniques, such as Target Costing (TC), have been promoted by many organizations worldwide in response to the competitive challenges and in pursuing their overall strategic goals. However, as Kaplan's (1984) review of The Evolution of Management Accounting and Johnson and Kaplan's (1987) book of Relevance Lost criticized the management accounting practices during the 1980s, several management accounting innovations have been developed across a range of industries and implemented internationally (Abdel-Kader & Luther, 2006). In addition, Johnson and Kaplan (1987) argued that management accounting had not changed since the early twentieth century and had lost its relevance in providing information for decision making. But in fact, there is growing evidence that the management accounting techniques have been developed and promoted across a wide range of industries. In particular, TC was initially developed by Japanese Toyota Corporation in the 1960s. The concept, which was known as the Toyota Production System (TPS), was aggressively promoted by Toyota and was later adopted by other non-Japanese companies. Despite the fact that detailed information about TPS was made available by Toyota Corporation, not all companies were able to emulate the systems. Effectively, only those manufacturing companies with the right organizational capabilities (OCs) were able to successfully emulate TPS. In particular, the OCs related to product development strategy and customers' expectations analysis have been recognized as success factors for management accounting practices including TC (Hamood, Omar & Sulaiman, 2011).

However, following the oil crisis in 1973, more innovations were introduced to the production system of manufacturing companies. That period was later recognized as an era when management accounting underwent the most advanced stage of innovation. Essentially, cost and management accounting techniques were used to ensure product competitiveness in terms of design, development, and cost. Hence, it is very interesting to explore, through previous studies review, how the focus of TC has been developed globally by many organizations as a response to the competitive challenges. Moreover, the scope of the TC functions and the wide range of TC implementation across different countries have evolved globally and consistently with management accounting development. …

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