Proceedings

The TC method allows the design of new products according to the market
expectation (price) and of the shareholders (profit margin) resulting the target cost
also according to the firm’s competencies and technical options (estimate cost).
The general calculation formula is:
Target Cost = Competition’s selling price – Expected margin
In the case of the TC method, the market price represents the independent variable
and the costs for design, manufacturing, marketing and other functions are depending
on it.
The variable that the enterprise can’t control is the selling price. It results from the
actual or predicted state of the competition forces that are pressuring the targeted
market segment.
This price is the result of a compromise of examining the different restrictions: needs
and income of the potential client, particularities of the product, long term production
capacity, competitor’s prices. Analyzed as a closed unitary concept of cost
management, TC is characterized through the estimation of values as functions of the
selling price, the complete costs and of the beneficiary on the whole life cycle of the
product.
Such a management is characterized by the following:
� It is maintained on the whole life cycle of the product;
� It focuses on costs even from the developing phase of the product;
� It is based and uses the price information from the target and starts from the
market-orientated cost information;
� It is based on the budgeting of the products functions;
� The evaluation basis is represented by the complete costs.
The objective that TC has represents the improvement of the situation for the results
related to the product through a reduction of standard costs in the direction of some
targets costs according with the competition.
Theoretically, the objective of TC is based on the following six principles:
1. The costs of future products to evaluate the mass production of internal
marketing projected revenue;
2. The necessary target costs, based on the complete costs formula are evaluated
through cutting out from the selling price the profit margin desired, taking into
account a certain degree of risk (cost component);
3. Overall costs are determined by the relationship between the selling price –
desired margin + risk rate and it is distributed on the different components of
the product corresponding to the utility function needed by the clients;
4. Costs of product components serve as the task for the entire value creation
chain, starting from research & development and continuing with supplying,
production and selling;
5. Through the analysis of the difference between target costs and standard costs
and through benchmarking we can identify, on a product component level, the
optimization potential;
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