ABSTRACT
Product-level target costing consists of three major steps. The first is setting the target cost of future products. The second consists of disciplining the target costing process. Achieving the product-level target cost is the final step. For the discipline of target costing to be maintained, the size of the strategic cost-reduction challenge must be managed carefully. The calculation of the waste-free costs can augment the target costing process by placing the cost and product-level target costs in the perspective of the cost-reduction path to the ultimate waste-free objective. A strategic cost-reduction challenge should reflect the true inability of the firm to match its competitors' efficiency. The strategic cost-reduction challenge shows how far behind the firm are compared to its most efficient competitor. The difference between the allowable cost and the product-level target cost represents the strategic cost-reduction challenge. This challenge identifies the inability of the firm to achieve strategic parity with its competitors.
