The use of target costing in Swedish manufacuring firms

Abstract

The purpose of this paper was to investigate the extent to which Swedish manufacturing companies use target costing. Through random sampling, 250 companies were selected and contacted by telephone, at which point they were asked if they would participate in a survey located on a web site. The number of answers received was 91, which gives a response rate of 36.4 %. Target costing was introduced in the 1960’s and originates from Japanese cost management. Since then, target costing has grown and its use has become much more widespread. Simply explained, target costing is setting the target price and target profit for future products, the difference between these is the target cost. In cases where the target cost cannot be achieved, value engineering is used to reduce costs. No similar survey has ever been conducted in Sweden, which makes the results very interesting. However, surveys on the use of target costing have been carried out in several other countries, which will be used for the purpose of comparison. The results from this survey showed that 16.5 % of Swedish manufacturing firms are using target costing – a figure that was expected to be higher prior to the survey. A lack of knowledge about target costing was the main reason why some companies chose not to adopt the practice. The result showed that companies using target costing can be characterised as larger companies which have a differentiation strategy and which operate in highly competitive environments.