Mercedes-Benz All Activity Vehicle

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“Mercedes-Benz (All Activity Vehicles)” Target Costing REGIS UNIVERSITY Date: April 15th, 2013 Week-7 assignment MSAA 609: Cost Management Professor: Darcy Philip Executive Summary Target costing is a cost management tool used to control product cost during product development, redesign and reorientation. It helps a firm to achieve desired profitability by designing into a product those manufacturing processes and materials that will ensure that product cost is controlled while delivering the specified functionality and feature set. Unlike a budgeted cost where cost is predetermined after a product is in production, a target cost is a market driven cost that is computed before a product is produced. (“Target Costing,” 2013) It is very important to manage costs before products have been produced, because nearly 80% of the costs of many products are committed at the design stage. Therefore, the best opportunity to reduce costs is during design and not after a product is being manufactured. For this reason many companies, especially manufacturing industries considered target costing as an effective pricing method (“Target Costing,” 2013). Target costing provides a company with a competitive advantage, enabling it to (Hafeezm, 2013): 1. Develop an external focus on customers’ needs and competitors’ actions 2. Establish a comprehensive and cohesive profit and cost planning system that links the firm to members of its value chain 3. Achieve its target cost during design and development, before manufacturing begins 4. Focus on continual improvement of both product and process design However, successful implementation of a target costing system involves managing several interrelated elements, such as; price led, customer focused, design centered and cross functional (Platt, 2001). In the case study, by giving an example of Mercedes

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