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What Is The Accountant’s Role In A Target Costing Environment?



Given the strong cost orientation in a target costing environment, there is obviously a considerable role for the accountant on a design team. What are the specific activities and required skills of this person?

The accountant should be able to provide for the other members of the design team a running series of cost estimates that are based on initial design sketches, activity based costing reviews of production processes, and best-guess costing information from suppliers, based on estimated production volumes. Especially at the earliest stages of a design, the accountant will be working with vague cost information, and so must be able to provide estimates that are within a high–low range of costs, gradually tightening this estimated cost range as more information becomes available.


The accountant should also be responsible for any capital budgeting requests generated by the design team, since he or she has the most knowledge of the capital budgeting process, how to fill out required forms, and precisely what types of equipment are needed for the anticipated product design. The accountant also becomes the key contact on the design team for any questions from the finance staff regarding issues or uncertainties in the capital budgeting proposal.

The accountant should work with the design team to help it understand the nature of various costs (such as cost allocations based on an activity-based costing system), as well as the cost/benefit trade-offs of using various design or cost options in the new product.

In addition, the accountant is responsible for tracking the gap between the current cost of a product design and the target cost that is the design team’s goal, which should include an itemization of where cost savings have already been achieved and in what areas of the product there has not been a sufficient degree of progress.

Finally, the accountant must continue to compare a product’s actual cost against the target cost after the design is complete, and for as long as the company is selling the product. This is a very necessary step, because management must know immediately if costs are increasing beyond budgeted levels and why those increases are occurring.

Given the large number of activities for which an accountant is responsible under the target costing methodology, it is evident that the job is a full-time one for all but the smallest costing projects. Accordingly, an accountant will commonly be sent to a design team as a long-term assignment, and may even report to the design team’s manager, with no or few ties back to the accounting department. This may even be a different career track for an accountant, being permanently attached to a series of design teams.

There are very particular qualifications that an accountant must have before being assigned to a target costing team. One is certainly having a good knowledge of company products, as well as their features and components. Also, the accountant must know how to create an activity-based costing system to evaluate related production costs, or at least interpret such costing data that has been developed by someone else. Further, this person must work well in a team environment, proactively assisting other members of the team in constantly evaluating the costs of new design concepts. Further, the person should have good analysis and presentation skills, since the ongoing costing results must be continually presented not only to other members of the team, but also to the members of the milestone review committee. Accordingly, the best accountant for this position is an outgoing one with some years of experience within a company or industry.

Hey, have you read:

Improve Profitability With Target Costing

How Does Target Costing Work? and What Is Value Engineering?

Under What Scenarios Is Target Costing Useful? Are There Any Problems With Target Costing?

What Data Is Needed For A Target Costing Analysis?

How To Control The Target Costing Process?

How To Measure The Success Of A Target Costing Program?

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