U.S. manufacturers have learned cost management should start up front at the initial stage to be effective and measure up to their foreign counterparts. A new cost management concept has been developed and practiced by worldclass Japanese manufacturers to deal with the needs in the product development and design phase. A case example illustrates the technique. Control Costs Early Target costing, although its concept is used throughout the product life cycle, is primarily used and most effective in the product development and design stage. In U.S. companies, costs of designing, producing, marketing, and delivering products dictate the mode of competition.
Accountants usually measure, based on allocation routines, the total cost of each product.
Most popular cost accounting methodologies, including the emerging activity-based costing, focus on product profitability. This focus on meeting the shareholders' short-term needs has been well documented, and easily understood if we look at the Big Three automakers' practice of raising prices whenever there is a restriction placed on Japanese imports. The practice is effective in achieving the desired ROI or ROE, but it hurts the carmakers' ability to increase market share in sales volume. An increased market share would give them a buffer in the future if they choose to sacrifice sales volume to increase revenue and longterm profit. In companies where target costing is used, there seems to be a different culture and attitude.