Target costing, co-ordination and strategic cost management

TLDR

Strategic management accounting has attracted attention, but its conceptual foundations remain unclear. This paper presents a theoretical analysis of target costing, one of the most prominent approaches in strategic management accounting. The authors analyze three characteristics of target costing: its market orientation, its role as a coordination instrument, and its interaction with strategic learning that shapes long‑term cost structure. The analysis shows that adding more strategic dimensions to cost management reduces the validity of target costing as traditionally employed.

Abstract

During the last years issues of strategic management accounting have received widespread attention in the accounting literature. Yet the conceptual foundation of most proposals is not clear. This paper presents a theoretical analysis of one of the most prominent approaches of strategic management accounting, i.e. target costing. We analyse three distinct characteristics of this strategic management accounting tool, namely its market orientation, its use as co-ordination instrument and its interaction with other factors affecting long-term cost structure in the form of strategic learning. The analysis shows that the more 'strategic' dimensions are added to the problem of cost management, the less valid are 'strategic' management accounting proposals in terms of the usual way target costing is employed.