International Journal of Academic Research in Accounting, Finance and Management Sciences
Vol. 4, No.3, July 2014, pp. 97–108
E-ISSN: 2225-8329, P-ISSN: 2308-0337
© 2014 HRMARS
www.hrmars.com
Impact of Target Costing on Competitive Advantage in the Manufacturing
Industry: A Study of Selected Manufacturing Firms in Nigeria
Adeniyi Segun IDOWU
Department of Accountancy, Nnamdi Azikiwe University, Awka, Nigeria
E-mail: princeadeidowu@gmail.com
Abstract
Key words
The research work examined target costing and competitive advantage in the manufacturing
industry. The main objective of this study is to ascertain the impact of target costing on competitive
advantage in Nigeria manufacturing firms. The specific objectives are: to determine how target
costing enhance cost advantage in manufacturing firms, to ascertain how target costing enhance
product quality advantage in manufacturing firms, and to ascertain the challenges faced by
manufacturing firms in adopting target costing. Chief Accountants, Marketing Directors and
Production Engineers were used to determine the impact of target costing on competitive advantage
in Nigeria manufacturing firms. Survey design was adopted for this study. Copies of questionnaires
were administered to 134 sample respondents. Analysis of variance (ANOVA) was used to analyze
data collected statistically at 5% or 0.05 level of significance to find out the impact of target costing
on competitive advantage in manufacturing firms using difference in proportion, and in testing the
hypotheses; Regression analysis was used, with the aid of statistical package for social sciences
(SPSS)20.0 soft ware. The test showed that target costing enhance cost advantage and quality
advantage in competitive manufacturing industry, despite some teething problems encountered by
firms in adopting the technique. The researcher recommends that internally, coordination and
involvement of financial and accounting professionals is needed to implement target costing and a
close monitoring of marketing and quality control throughout the entire process in order to be a
success. Moreover, senior management team should support and pay more attention to application
of target costing to achieve the substantial reductions in production costs to strengthen
competitiveness.
Target costing, manufacturing industry, competitiveness, quality control, analysis
DOI: 10.6007/IJARAFMS/v4-i3/1025
1.
URL: http://dx.doi.org/10.6007/IJARAFMS/v4-i3/1025
Introduction
Globalization, technological advancements, increasingly shorter product life cycle, new competitors
breaking into market, the growing and changing customer needs have greatly complicated today’s business
world. Businesses have started to change their manufacturing systems by means of using modern
manufacturing technologies. Congruously, present costing methods that are insufficient to provide efficient
cost information in these conditions of competition, has been called into question. Cost information and cost
management have become an essential fact for businesses that want to be more successful in the risen heat
of the competition of today’s economic climate. Today, new methods that consist of advanced and elaborate
technical studies and approach to cost reduction factors individually, started to find their way into operations.
One of these methods emerged in this process is Target Costing technique.
Target costing is a contemporary management accounting tool developed principally by Japanese
manufacturers (Kato, 1993; Tani et al., 1994). The practice endeavours to design new products to meet a cost,
which is calculated by subtracting the desired profit margin from a market-based price for the product
(Cooper and Slagmulder, 1999; Guilding et al., 2000; Dekker and Smidt, 2003). Target costing attempts to
reduce a product’s life-cycle costs before production begins in order to achieve desired profitability (Kato,
International Journal of Academic Research in Accounting, Finance and Management Sciences
Vol. 4 (3), pp. 97–108, © 2014 HRMARS
1993). Target costing assists in making the new product competitive in terms of cost, quality and functionality
(Cooper and Chew, 1996).
According to the CIMA Official Terminology (CIMA, 2005) a target cost is ''a product cost estimate
derived by subtracting a desired profit margin from a competitive market price.'' Sakurai (1989) defines target
costing as a ''cost management tool for reducing the overall cost of a product over its entire life cycle with the
help of the production, engineering, R&D, marketing, and accounting departments''.
Regarding the globalization of markets and the issue of joining world trade market, the companies
would be inevitably led into competitive environment and would be forced to use the target costing in order
to survive in such environment. The increase in standards of rivals' products, economics globalization, high
competition in prices and lower life cycle of products suggest that market seeks those products that are
supplied with lower prices in addition to previous performance whilst they cannot reduce their profitability.
Research shows that target costing is being used worldwide (for example, Adler et al., 2000; Carr and
Ng, 1995; Dekker and Smidt, 2003; Dyer, 1996; Guilding et al., 2000; Joshi, 2001; Nicolini et al., 2000; Shank
and Fisher, 1999; Wijeweardena and De Zoysa, 1999). However there is still little research outside of Japan,
and scant research in Nigeria context.
In a competitive environment, the ever increasing cost is regarded as one of the principal parameters
for customers. In reply to cost improvement, many Manufacturers have embarked on accepting and utilizing
the management accounting tools and techniques among them is the target based costing (Muia, 2012).
The goals of becoming and remaining internationally competitive in terms of price and quality are of
utmost importance for the survival of the Nigerian manufacturing industry. The dilemma for manufacturers
is to match the lower prices of the global competition and still offer the highest quality products that
customers demand. Some manufacturing firms find it difficult to practice target costing in this competitive
market. However, some manufacturing firms practicing target costing can hardly justify their competitive
advantage in manufacturing industry.
1.1. Statement of problem
The rapid developments in the modern production environment, such as increased local and
international competition, the speed of technological progress, the diversity of customer needs, and the short
product life cycle, showed inadequate traditional and management accounting methods to cope with these
developments, therefore, they imposed new dimensions to the concepts of cost, the content of the
measurement accuracy, and cost comparisons methods.
Those factors have led to the emergence of target cost method as one of the tools of cost
management.
The dilemma for manufacturers is to match the lower prices of the global competition and still offer the
highest quality products that customers demand. Some manufacturing firms find it difficult to practice target
costing in this competitive market. However, some manufacturing firms practicing target costing can hardly
justify their competitive advantage in manufacturing industry. Based on the foregoing, therefore, the study
was designed to determine the impact of target costing on competitive advantage in Nigeria manufacturing
firms.
1.2. Objective of the study
The general objective of the study is to ascertain the impact of target costing on competitive advantage
in Nigeria manufacturing firms.
The specific objectives for the study are:
i. To determine how target costing enhance cost advantage in manufacturing firms.
ii. To ascertain how target costing enhance product quality advantage in manufacturing firms.
iii. To ascertain the challenges faced by manufacturing firms in adopting target costing.
1.3. Research questions
The study will seek to answer the following questions:
i. To what extent does target costing enhance cost advantage in manufacturing firms?
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Vol. 4 (3), pp. 97–108, © 2014 HRMARS
ii. To what extent does target costing enhance product quality advantage in manufacturing firms?
iii. What are the challenges faced by Nigeria manufacturing firms in the adoption of target costing?
1.4. Research hypotheses
This research work is guided by the following hypotheses:
Ho 1: Target costing does not enhance cost advantage in manufacturing firms.
Ho 2: Target costing does not enhance product quality advantage in manufacturing firms.
Ho3: Nigeria manufacturing firms do not face any serious challenges in the adoption of target costing.
1.5. The significance of the study
The outcome of the study will help to educate manufacturers in Nigeria on the need for efficient use of
target costing technique for strategic pricing approach to enhance effective cost management and to match
the lower price of the global competition and still offer the highest quality products customers demand.
It will help Managers’ to have comprehensive and integrated information on all aspects of performance
and costs associated with it to be able to run it in a way that will make them to compete favorably in this
global competition.
1.6. Scope of the study
The study was designed to determine the impact of target costing on competitive advantage in Nigeria
manufacturing firms. Seven companies were selected from Food and beverage manufacturing industry
quoted in Nigeria Stock Exchange and has their head office in Lagos State. The companies are: Guinness
Nigeria Plc., Nigeria Breweries (NB) Plc., Cadbury plc., Nestle Nigeria Plc., Honeywell Nigeria Plc., Flour mill
Nigeria Plc., and Dangote flour plc. We choose food and beverage companies for this study due to great
pressure on the industry to lower costs and improve the quality and efficiency of operations in the industry.
However, some companies within food and beverage industry are practicing target costing system.
2. Literature review
In the accounting literature, target costing has been introduced as a strategic management accounting
system for the management of product costs (Ewert and Ernst, 1999). It is a costing technique to manage a
firm’s future profits by explicitly including target costs in the product development process (Cooper and
Slagmulder, 1999). Target costing is a contemporary management accounting tool developed principally by
Japanese manufacturers (Kato, 1993; Tani et al., 1994). The practice endeavours to design new products to
meet a cost, which is calculated by subtracting the desired profit margin from a market-based price for the
product (Cooper and Slagmulder, 1999; Guilding et al., 2000; Dekker and Smidt, 2003). Target costing
attempts to reduce a product’s life-cycle costs before production begins in order to achieve desired
profitability (Kato, 1993). The target costing team assists in making the new product competitive in terms of
cost, quality and functionality. Cooper and Chew (1996), states that by influencing products and processes,
target costing are concerned with shaping the foundations of the organization and can be regarded as the
most proactive of all the uses of costing.
According to the CIMA Official Terminology (CIMA, 2005) a target cost is ''a product cost estimate
derived by subtracting a desired profit margin from a competitive market price.'' Sakurai defines target
costing as a ''cost management tool for reducing the overall cost of a product over its entire life cycle with the
help of the production, engineering, R&D, marketing, and accounting departments'' (Sakurai, 1989).
Management utilizes this pricing technique to meet both the demands of its customers as well as company
profit goals.
The target costing technique was first developed in the Japanese automobile industry in order to help
the decision of making and selling new products, as well as analyzing product costs and marginal returns.
According to Cooper and Kaplan (1998) the target costing essence can be divided in three main parts: (a)
allow the market to establish the product sale price (b) subtract the determined product margin required by
the company and (c) resulting in the target costing.
Sale Price – Required Return = Target Costing
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Vol. 4 (3), pp. 97–108, © 2014 HRMARS
Ansari et al (1997) state that since target costing is market driven, the views of customers are of utmost
importance and should therefore be taken into account throughout the entire process. Understanding the
needs of customers and what competitors are currently doing or might do to meet those needs is essential.
Quality, cost and time requirements of customers are thus incorporated in product and process decisions and
guide cost analysis. Engineering development activities are driven by a focus on customers and are shaped by
the demands of the market.
Target costing has been widely adopted in Japan since it was first introduced at Toyota in the middle of
the 1960s (McMann and Nanni, 1995). Tani et al. (1994) find 60.6 per cent of Japanese manufacturing firms
listed on the Tokyo Stock Exchange have adopted the practice, while Kato (1993) claims over 80 per cent of
major assembly companies in Japan employ target costing. Articles on how the Japanese use target costing
began to appear in English in the business and accounting literature less than twenty years ago (for example,
Hiromoto, 1988 and Sakurai, 1989). A number of case studies have been undertaken in leading Japanese
manufacturers, such as Matsushita Electric, Toyota, Sony, Olympus, Komatsu, Mitsubishi, Nissan and
Daihatsu, and published in English (Fisher, 1995; Cooper, 1996a, Kato et al., 1995).
There has been some research on the adoption of target costing outside of Japan. Guilding et al.’s
(2000) survey of the adoption of various management accounting techniques in New Zealand, the United
States, and Britain finds moderate use and perception of target costing useful. Similarly, Adler et al.’s (2000)
survey of the adoption of advanced management accounting techniques by New Zealand manufacturers finds
that less than seven percent use target costing. Dekker and Smidt (2003) conducted a detailed examination of
target costing in Dutch firms revealing an adoption rate of 59.4 per cent for listed manufacturing companies.
Chenhall and Langfield-Smith (1998) find 38 per cent of Australia’s largest manufacturers use target costing,
while Joshi (2001) establishes that 35 per cent of sample of Indian manufacturers have adopted the practice.
Target costing has a number of implementation challenges. Banham (2000) quotes the Senior Manager
of Finance at Boeing and agrees implementation barriers include: lack of understanding in corporate America
(in fact the term is not well known and much of the Japanese literature on "drifting cost" has not been
translated); cultural barriers against cross-functional cooperation; organizational barriers to team oriented
work (difficult to achieve in a functional structure); and a perceived irrelevance about the effects. Still other
barriers may include the organizations information systems and its lack of total system integration. To share
cost reductions, supply chain partners must be able to share initial cost and production data.
Liu (2003) opines that the company's competitive advantage means the company advantage from the
perspective of market of the product that will bring more competitive position for it. While Stevenson (2007)
stresses on that it is practically aims at meeting customer’s needs and desires in order to possess the
company's products. Jones (2008) said a company has a sustainable competitive advantage when it can be
able to maintain the rate of profit higher than the rate of profitability of the industry for several years through
its ability to produce its products at lower costs than its competitors. However, Abdel-El-Dayem (2001),
opines that target costing is considered as the technical support of the organization’s activities in addition to
its assistance in access what is the best by providing senior management with the necessary information to
manage costs, because they represent a comprehensive system of planning profit, and works to reduce
production costs.
3. Methodology of research
A cross sectional survey design was used to address the problem of this study. The use of the survey
design allowed the issues to be addressed in their organizational setting rather than in a contrived laboratory
setting. It allows the collection of large amount of data from a sizeable population in a highly economical way.
The participants are the Chief Accountants and Marketing Managers and Production Engineers of; Guinness
Nigeria Plc., Nigeria Breweries (NB) Plc., Seven Up bottling Company plc., International Breweries Plc.,
Cadbury Nigeria plc., Nestle Nigeria Plc., Honeywell Nigeria Plc., Dangote Sugar Refinery Plc., Flour mill
Nigeria Plc., and Dangote flour mill plc was selected to represent the population size to be covered. The
choice of these participants was due to; applying target costing or having a similar process, have extensive
market analyses and marketing information systems. They follow balanced competition strategies. They have
comprehensive cost estimation systems and can be considered as applying cost planning successfully.
Correspondingly, most of these companies have the understanding of product life cycle costing.
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Table 1. The sample size of 190 selected from the population was tabulated below:
S/N
01
02
03
04
05
06
07
08
09
10
Respondents (management Staff)
Guinness Nigeria Plc.
Nigeria Breweries (NB) Plc.
International Breweries Plc.
Seven Up bottling Company plc.
Cadbury Nigeria plc.
Nestle Nigeria Plc.
Dangote Sugar refinery Plc.
Honeywell Nigeria Plc.
Flour mill Nigeria Plc.
Dangote flour plc.
Total
Total
25
24
22
21
19
22
13
12
17
15
190
Source: field survey 2014
4.
Method of data analysis
The data collected from the questionnaire administered and hypotheses formulated have been
statistically tested with the aid of SPSS 20.0 software. The statistical model chosen for the analysis of data is
multiple regression analysis and analysis of variance [ANOVA].
The model in its functional form was specified as follows:
Tacost= f (C1, Qj, Ak)
Three sets of hypotheses were advanced for confirmation in this study.
The first null hypothesis is; target costing does not enhance cost advantage in manufacturing firms.
Test items were developed to obtain cost advantage behaviour score.
The model to be used to confirm this proposition is presented below:
Tacost i = B0 + B1 C 1 + ei
Bi > 0; R2t > 0.
(1)
The Bi is a measure of the impact of target costing on cost advantage.
The second null hypothesis is;
Target costing does not enhance product quality advantage in manufacturing firms. The model to be
used to confirm this proposition is presented below:
Tacost j = B0 + B1Qj + ej
Bi > 0; R2Q > 0
(2)
Bi measures the impact of target costing on quality advantage.
The third hypothesis is; Nigeria manufacturing firms do not face any serious challenges in the adoption
of target costing. The model to be used to confirm this proposition is presented below:
Tacost k = B0 + B1Ak + ek
Bi > 0; R2A > 0
(3)
B1 measure serious challenges facing the adoption of target costing by manufacturing firms.
Where:
Tacost = Target costing;
C1 = Cost advantage;
Qj = Quality advantage;
Ak = Challenges for adoption of target costing;
e = Error term;
B0 …….. B3 = Coefficient.
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5. Presentation and analysis of data
In carrying out this study, questionnaire was used for collection of primary sources of data and
secondary sources were also collected, which were analyzed. The two major methods used in analyzing the
data collected were: Analysis of variance and Regression analysis.
The researcher administered one hundred and ninety copies of questionnaires randomly to Chief
Accountants, Production Engineers and Marketing Managers out of which one hundred and thirty -four copies
were successfully retrieved representing 71% of the number of questionnaire administered. The test
concerning the parameter was carried out using Analysis of Variance, and to test secondary data, correlation
coefficient was used.
Table 2. Administration of questionnaire
Details
Copies administered
Copies returned
Wrongly filed/unreturned copies
Number of copies
190
134
56
Percentage (%)
100 %
71 %
29 %
Source: field survey 2014
6. Analysis of Response
Table 3. To what extent does target costing enhance cost advantage in manufacturing firms?
1.
2.
3.
4.
5.
6.
X
Statement
The process of reducing cost of the product is one
of the main priorities in the company objectives.
SA
64
A
53
D
11
SD
06
T
134
3.31
Remark
A
The management of the company determines the
costs gap by comparing the cost of the initial
design and target cost of the product.
There is a mutual relationship between the
company and suppliers in the field of the quality
and the cost of the product components.
The management of the company tries to reduce
waste and loss to the least extent in marketing and
administrative costs.
The management of the company tries to reduce
waste and loss to the least extent in storage costs.
The senior management evaluates the cost
performance for sections, quarterly and annually.
60
57
10
07
134
3.27
A
63
53
09
09
134
3.27
A
66
52
10
06
134
3.23
A
62
55
12
5
134
3.30
A
67
52
11
4
134
3.36
A
Source: field survey, 2014
This tablet shows the opinion of different respondents as well as their mean score on how target
costing enhance cost advantage in competitive environment. The process of reducing cost of the product is
one of the main priorities in the company objectives. This is supported by a mean score of 3.31. Also, the
management of the company determines the costs gap (differences /deviations) by comparing the cost of the
initial design and target cost of the product. Support to this response is backed by a mean score of 3.27 which
is accepted. There is a cooperative relationship between the company and suppliers in the field of the quality
and the cost of the product components. This response is supported by mean score of 3.27 which is accepted.
The management of the company tries to reduce waste and loss to the least extent in marketing and
administrative costs. This response is baked by the mean score of 3.23 which is accepted. The management of
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Vol. 4 (3), pp. 97–108, © 2014 HRMARS
the company tries to reduce waste and loss to the least extent in storage costs. This is supported with a mean
score of 3.30 which is accepted. Moreover, the senior management evaluates the cost performance for
sections, quarterly and annually. This is supported with a mean score of 3.36 which is accepted. It could be
observed that target costing enhance cost advantage in manufacturing firms. This is clearly shown in the
grand mean score of 3.29.
Table 4. To what extent does target costing enhance product quality advantage in manufacturing firms?
7.
8.
9.
10.
11.
12.
Statement
The management of the company supports reducing the
percentage of the defective and damaged products,
compared with similar companies.
The management of the company does its best to
produce products that have specifications which are
identical to the standard specifications.
The management of the company supports the
improvement in the quality of product design.
The management of the company supports the
application of the requirements for ISO certification.
Management Circulate quality standards manual to all
the employees in the company.
The management of the company enhances awareness
about the quality in the company
X
SA
76
A
32
D
17
SD
9
T
134
3.31
Remark
A
82
35
13
4
134
3.46
A
71
45
11
7
134
3.34
A
76
24
18
16
134
3.19
A
69
36
22
7
134
3.25
A
79
42
9
4
134
3.46
A
Source: field survey, 2014
This table shows the opinion of different respondents towards the effect of target costing on product
quality advantage in manufacturing firms. The management of the company supports reducing the
percentage of the defective and damaged products, compared with similar companies. This is supported by a
mean score of 3.31 which is accepted. Also, the management of the company does its best to produce
products that have specifications which are identical to the standard specifications. This is supported by a
mean score of 3.46 which is accepted. The management of the company supports the improvement in the
quality of product design. This is supported by a mean score of 3.34 which is accepted. The management of
the company supports the application of the requirements for ISO certification. This is supported by a mean
score of 3.19 which is accepted. Management Circulate quality standards manual to all the employees in the
company. This is supported by a mean score of 3.25 which is accepted. Therefore, the management of the
company enhances awareness about the quality in the company. This has a mean score of 3.46 which is
acceptable. The idea is accepted with grand mean score of 3.34 that target costing enhance product quality
advantage in manufacturing firms.
Table 5. What are the challenges faced by Nigeria manufacturing firms in the adoption of target costing?
13.
14.
15.
Statement
While target costing has a straight forward
logic, the implications in practice are more difficult,
particularly when the culture has previously embraced a
cost-plus approach to pricing.
Lack of understanding of costs throughout the supply
chain and not having tightly linked, communicating
supply chain partners.
Many managers regard target costing as just another
buzz word or accounting term with little relevance to
manufacturing or marketing.
X
SA
83
A
34
D
07
SD
10
T
134
3.42
Remark
A
63
46
18
07
134
3.23
A
72
44
11
07
134
3.35
A
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16.
17.
18.
Statement
The design process must be broken down into its lowest
level components. This requires the involvement of
manufacturing, design engineering, product engineering
and marketing.
There is a cultural barrier as “people tend to build
fences around their responsibilities because that is what
they believe they are measured on”.
There is an organizational barrier as “employees are
organized according to functions in most companies.”
X
SA
61
A
53
D
04
SD
16
T
134
3.19
Remark
A
79
36
07
12
134
3.36
A
76
42
10
6
134
3.49
A
Source: field survey, 2014
This table shows the opinion of different respondents towards the challenges faced by Nigeria
manufacturing firms in the adoption of target costing. While target costing has a straight forward
Logic, the implications in practice are more difficult, particularly when the culture has previously
embraced a cost-plus approach to pricing. This is supported by a mean score of 3.42 which is accepted. Also,
Lack of understanding of costs throughout the supply chain and not having tightly linked, communicating
supply chain partners. This is supported by a mean score of 3.23 which is accepted. Many managers regard
target costing as just another buzz word or accounting term with little relevance to manufacturing or
marketing, their mean score is 3.25, signifying acceptance.
The design process must be broken down into its lowest level components. This requires the
involvement of manufacturing, design engineering, product engineering and marketing. This is supported by a
mean score of 3.19 which is acceptable. There is a cultural barrier as “people tend to build fences around their
responsibilities because that is what they believe they are measured on.” This is supported by a mean score of
3.36 which is accepted. In addition, there is an organizational barrier as “employees are organized according
to functions in most companies”. Their mean score is 3.49 which signify acceptance. This entails that Nigeria
manufacturing firms do face serious challenges in the adoption of target costing based on the respondents’
opinion with the grand mean score of 3.34.
7. Testing of Hypotheses
The decisions reached on hypotheses are based on the result obtained from regression calculation and
the tabulated value of the regression distribution. We reject Ho if F – calculated is greater than F – tabulated
at 5% level of significance, otherwise we accept.
Hypothesis One
Ho: Target costing does not enhance cost advantage in manufacturing firms.
Hi: Target costing enhances cost advantage in manufacturing firms.
In testing of hypothesis one, question 1, 2,3,4,5, and 6 was drawn to seek response on relationship
between cost advantage and target costing.
Table 6a. Regression coefficient for target costing on cost advantage
R
B
Constant
113.671
Cost advantage
19.541
2
R = .92, F(1, 4) =47.496, P =.002
Beta
.96
T = test
T= 3.47, p = 0.26
T= 6.89, p =.002
Table 6b. Analysis of variance table
Model
Regression
Residual
104
Sum of square
69811.93
5879.41
Df
1
4
Mean square
69811.93
1469.85
F
47.496
International Journal of Academic Research in Accounting, Finance and Management Sciences
Vol. 4 (3), pp. 97–108, © 2014 HRMARS
Target costing explain 92 per cent of variation experience in cost advantage, and this result is
significant F ( 1, 4) = 47.496, P < 0.05. Target costing makes a positive impact on cost advantage and this is
significant, t (6. 89), p <.005.
Decision
Based on the analysis above, the null hypothesis (H0) is therefore rejected while the alternative
hypothesis (H1) is accepted; which state that target costing enhances cost advantage in manufacturing firms.
Hypothesis Two
Ho: Target costing does not enhance product quality advantage in manufacturing firms.
Hi: Target costing enhances product quality advantage in manufacturing firms.
In testing of hypothesis two, question 7,8,9,10,11, and 12 was drawn to seek response on relationship
between product quality advantage and target costing.
Table 7a. Regression coefficient for target costing on quality advantage
R
B
Constant
135.996
Cost advantage
118.369
R2 = .95, F(1, 4) =36.90, P =.004
Beta
.95
T = test
T= 4.80, p = .009
T= 6.08, p =.004
Table 7b. Analysis of variance table
Model
Regression
Residual
Sum of square
63943.86
6931.48
Df
1
4
Mean square
63943.86
1732.87
F
36.90
Target costing explain 95 per cent of variation experience in quality advantage, and this result is
significant F (1, 4) = 36.90, P < 0.05. Target costing makes a positive impact on cost advantage and this is
significant, t (6. 09), p <.005.
Decision
Based on the analysis above, the null hypothesis (H0) is therefore rejected while the alternative
hypothesis (H1) is accepted; which state that target costing enhances quality advantage in manufacturing
firms.
Hypothesis Three
Ho: Nigeria manufacturing firms do not face any serious challenges in the adoption of target costing.
Hi: Nigeria manufacturing firms do encountered serious challenges in the adoption of target costing.
In testing of hypothesis three, question 13, 14,15,16,17, and 18 was drawn to seek response on serious
challenges in the adoption of target costing.
Table 8a. Regression coefficient on serious challenges for adopting target costing
R
B
Constant
119.362
Cost advantage
20.695
2
R = .92, F(1, 4) =21.996, P =.009
Beta
.92
T = test
T= 3.10, p = .036
T= 4.68, p =.009
Table 8b. Analysis of variance table
Model
Regression
Residual
Sum of square
50275.15
9184.35
Df
1
4
Mean square
50275.15
2296.10
F
21.996
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Problems of adopting target costing was explained by 92 per cent of variation experience in
manufacturing firms, this result is not significant F (1, 4) = 21.996, P > 0.05. Target costing makes a positive
impact on cost advantage and this is significant, t (4.68), p <.005.
Decision
Based on the analysis above, the alternative hypothesis (H1) is therefore rejected while the null
hypothesis (H0) is accepted; which state that Nigeria manufacturing firms do not face any serious challenges
in the adoption of target costing.
8. Summary of findings, conclusion and recommendation
Based on analyzed data, the findings in this study include the followings:
1. The study found the process of reducing cost of the product as one of the main priorities in the
company objectives. However, the management of the company determines the cost gap by comparing the
cost of the initial design and target cost of the product.
2. It was also discovered that target costing enhance quality advantage in manufacturing firms. The
management of the company produces products that have specifications which are identical to the standard
specifications. The management of the company supports the application of the requirement of ISO
certification.
3. The study found that while target costing has a straight forward logic, the applications in practice
are more difficult, particularly when the culture has previously embraced a cost – plus approach to pricing.
4. We discovered that target costing enhances competitive advantage in Nigeria manufacturing firms.
Based on the theoretical presentation of findings, the following conclusions were drawn:
Target costing encourage all participating functions of the firm to examine designs which enable to
manage costs before they are incurred rather than afterward due to the fact that majority of production costs
occur at the design stage. Therefore, the study found the relationship between the target costing and cost
advantage to be positive and concludes that target costing should be employed in competitive environment
to be able to have cost advantage over other competitors in the market,
Target costing enables manufacturing firms to ascertain a more realistic prices as well as well as
strengthen competition among firms to offer quality products at lower cost. We discovered that target costing
technique enhances quality advantage in competitive environment.
The study discovered that there are some challenges encountered in the process of adopting target
costing in manufacturing firms. Most of the challenges can be well managed by the management of the
company.
However, target costing assist managers to have comprehensive and integrated information on all
aspect of performance and cost associated with it to be able to run it in a way that will make them to
compete favorably in the global competition.
Based on the conclusion that target costing enhances cost advantage and quality advantage in
competitive environment despite some teething problems. The study makes the following recommendations
for the effectiveness of target costing and indirectly reduces or eliminates challenges facing the
manufacturing firms in adopting target cost method in Nigeria.
1. Carefully choosing the right supply chain partner makes the difference in whether the target cost is
reached or not. A bad choice can be disastrous and conversely a good partner can be a tremendous asset.
2. If the company has difficulty meeting a target cost, the firm may review the target cost to determine
if the cost can be raised or if margins can be reduced. However, the manufacturing process can be review for
possible modification or relaxation of product functionality requirement.
3. Internally, coordination and involvement of financial and accounting professionals is needed to
implement target costing and a close monitoring of marketing and quality control throughout the entire
process in order to be a success.
4. The necessity of supporting and paying attention of senior management to apply target cost method
to achieve the substantial reductions in production costs to strengthen competitiveness.
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Vol. 4 (3), pp. 97–108, © 2014 HRMARS
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