The adoption of target costing as a contemporary management accounting technique in a public higher education institution : a case study of Durban University of Technology
Authors:   , Thango Thobelani Sabelo 
Published: March 2023

There is a growing need for public higher education institutions (HEIs) to opt for all cost management tools following the government’s shortfalls in the budget allocation for public HEIs. The focus should be on the suitable pricing methods that will consider the students’ perception of the value of education and give fees that are reasonable and accepted by students, while ensuring that the institution meets target returns. The biggest concern is that fees are based on the cost-based pricing model. Cost-based pricing always results in higher prices, where the accurate costs are unknown, despite the strategy used to implement it. Furthermore, fees are based on historic cost models, not on a continuously reworked costing model. Following cuts in the budget allocation to HEIs, the institutions have increased fees rapidly to remain sustainable. A fee calculated on uncertain historic costs while government support falls results in a rapid increase in fees. Target costing can assist in cutting down on unnecessary costs and ensure acceptable fees for students. Target costing is a known cost management tool that assists in ensuring costs management and keeping fees low. Despite the cuts in government spending on HEIs, adoption of target costing will result in reasonable costs to keep the fees low. Considering the limited empirical studies conducted on the adoption of target costing in South African public HEIs, study's main aim is to investigate the factors that influence the adoption of target costing in public HEIs, using the Durban University of Technology (DUT) as the case study. Therefore, this study will massively contribute to research pool on the adoption of target costing in HEIs. The study used the quantitative research method with a sample of 52 Heads of Departments and 15 finance staff. The research instrument employed was a questionnaire, which was dominated by close-ended questions. The study was guided by the positivist philosophy where data analysis was done using the Statistical Package for Social Science (SPSS version 27 ®), in which descriptive and inferential statistical analysis were undertaken. The results have shown that DUT is using the full cost-plus method to account for fees. The costs are allocated using the traditional absorption method. The results showed that target costing had not been fully used but exists in selected areas of the university. Findings further reveal that costs to fees are subject to historic judgement, implying that costs to fees are not reworked annually. While the fees increase, many respondents perceive the current pricing methods to be the best for the university and that the cost-plus pricing method is most appropriate to ensure it’s the university’s sustainability. Findings revealed that the variables which influenced the adoption of target costing at the DUT included: size of DUT, management style and staff inclusion, information system and technological advancement, vertical differentiation and centralisation, formal support to accounting for adoption of target costing, resource adequacy, intensity of competition, and government regulations. The respondents have disagreed that sufficiency in the expertise of target costing has an influence in the partial adoption of target costing at the DUT. The students’ perception on the value of education is also not the reason that the concept of target costing exists in some parts of the DUT. Overall, the results help to understand the current pricing method used at DUT. It has further brought a clear indication of the factors that influence the adoption of target costing and whether the elements of target costing exist at the university.