Case Study: Implementing Target Costing and Life$-$Cycle Costing

Introduction:

In today's competitive market, companies are under pressure to develop innovative products that meet customer needs while maintaining profitability. Two strategic costing approaches, target costing and life$-$cycle costing, can help businesses achieve these objectives effectively. Let's explore how a fictional company, Tech Innovations Inc., implemented target costing and life$-$cycle costing in the development of its latest smartphone.

Background:

Tech Innovations Inc. is a leading technology company known for its cutting$-$edge electronic devices. The company is planning to launch a new smartphone model to capture a larger market share. However, to remain competitive in the crowded smartphone market, Tech Innovations Inc. must carefully manage costs while delivering high$-$quality products.

Implementation of Target Costing:

Tech Innovations Inc. adopted target costing as a proactive cost management strategy for its new smartphone. The company analyzed market trends, customer preferences, and competitor pricing to determine the target selling price for the smartphone. Based on this target price, Tech Innovations Inc. calculated the allowable cost per unit, considering desired profit margins.

Implementation of Life$-$Cycle Costing:

In addition to target costing, Tech Innovations Inc. incorporated life$-$cycle costing into its product development process. The company recognized that the costs associated with a product extend beyond manufacturing and include costs incurred throughout its life cycle, such as research and development, production, marketing, distribution, and disposal.

Case Study Question:

How did Tech Innovations Inc. ensure profitability while developing its new smartphone?

a$)$ By setting a target selling price

b$)$ By analyzing competitor pricing

c$)$ By incorporating life$-$cycle costing

d$)$ By maximizing profit margins