Truck Redesign Case: Simulating the Target Costing Process in a Product Design Environment

Abstract

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.

Methods of Learning in Product Development Contexts

“…Many researchers such as Lantada et al [20]- [23], Duhovnik et al [23]- [26], Albers et al [27] [28] and Everaert and Swenson [29] researched using techniques of active learning in academic settings. There are very few studies using active learning techniques in a professional environment in the NPD context.…”

Applying Target Costing to the Service Sector: Sunline Auto Insurance Case

“…Target costing (TC) is not a new technique, and there is considerable literature in the area, certainly from a teaching-case perspective, in the context of manufacturing organizations (Cooper andSlagmulder 1999, Everaert andSwenson 2014). Surprisingly, given the price and cost pressures, there are few cases applying TC to the service sector.…”

“…MIT Sloan Management Review 40 (4): 23 2. Everaert, P., and D. W. Swenson (2014). Truck redesign case: Simulating the target costing process in a product design environment.…”

Research on target costing: past, present and future

“…Although a great variety of characteristics is subscribed to target costing, it is widely agreed that (1) market orientation, (2) early cost management and (3) cooperative efforts are its main characteristics (see, e.g., Chen et al 1997;Everaert and Swenson 2014;Ewert and Ernst 1999). First, due to the initial question of target costing, which is "What is a product allowed to cost?"…”

“…First, due to the initial question of target costing, which is "What is a product allowed to cost?" (Flik et al 1998;Hoffjan 1994;Seidenschwarz 2003), market cost information assumes the central role for cost-efficient product development (Everaert and Swenson 2014;Ewert and Ernst 1999). Second, an emphasis is put on cost management during (early) product development.…”