Target costing operationalization during product development: Model and application

Target costing is a widely used technique for cost management during product development (PD). Despite target costing's strategic intuitiveness, its operationalization during PD requires careful decomposition of a product's constituent cost elements. The main objective of this paper is to describe an experience developing early-stage cost parameters for a specific product development process effort at a mid-sized Brazilian manufacturing company by proposing and applying a target costing model. One secondary objective is to provide a model to operationalize "target costing" by breaking down cost targets into product parts, features and common elements, focusing on creating parameters for cost control during PD. Using a detailed case study, target costing is explicitly decomposed in four different stages in a PD environment. All these are intended as a complement to the strategic use of target costing. (C) 2008 Elsevier B.V. All rights reserved.