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This active learning exercise simulates the target costing process and demonstrates how a management theory (goal setting theory) is relevant to a business improvement initiative (target costing). As part of the target costing simulation, student participants work in teams to address a business issue (product development) that moves across functional boundaries. The simulation begins with students learning how to assemble a model truck and calculate its product cost using activity-based costing. Students are then divided into teams and instructed to reduce the truck's cost through a redesign exercise, subject to certain customer requirements and quality constraints. Typically, the teams achieve cost reduction by eliminating unnecessary parts, by using less expensive parts, and by using less part variety. This exercise provides a unique opportunity for students to actively participate in a redesign exercise. It results in student teams creating a wide variety of truck designs with vastly different product costs. The case ends by having a discussion about target costing, goal setting theory, and the implications of the target costing simulation. This simulation contains a number of specific learning objectives. First, students learn how the greatest opportunity for cost reduction occurs during the product design stage of the product development cycle. Second, students see firsthand how design-change decisions affect a product's costs, and the role of the cost information in guiding those decisions. Third, students experience the cross-functional interaction that occurs between sales and marketing, design engineering, and accounting during product development. Finally, this exercise helps students understand the concept of target costing. The simulation is appropriate for undergraduate or graduate management accounting classes. Data Availability:  For more information about this case, contact the first author at Patricia.Everaert@UGent.be.

While many Japanese companies have been using target costing as a strategic weapon for more than 30 years, only a small number of U.S. companies have been using target costing for any length of time. Hence, target costing is a relatively new and largely undocumented technique in the U.S. During the last decade, however, U.S. companies are increasingly interested in learning more about this powerful tool for managing costs in highly competitive market environments. The following article shows the results of the first broad empirical study on target costing practices in the United States. It also highlight the findings of several indepth case studies with successful target costing adopters.) Identify characteristics of companies implementing target costing in the U.S.

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No technique works equally well for every company. That's especially true for activity‐based costing and management (ABC/M). But which companies and industries have had the greatest success—and why? © 2001 John Wiley & Sons, Inc.