Target Costing in Bahrain

Target Costing in Bahrain

[Name of the Writer]

[Name of the Institution]

Table of Contents

CHAPTER 1: INTRODUCTION        3

Background Of Research        3

Research Contents        4

Research Objectives        6

Research Questions        6

CHAPTER 2: LITERATURE REVIEW        7

Target Costing        7

Target Costing In Bahrain        8

Competition Strategies of Bahraini Firms and Target Costing        9

Advantage of Target Costing        10

Main Features and Functions of Target Costing        12

Previous Studies on the Other Countries Target Costing        15

Practices Characterizable As Target Costing        17

CHAPTER 3: METHODOLOGY OF STUDY        20

Analysis Model        20

Analysis Techniques        24

Survey And Questionnaire        25

Pre-Test        26

Analysis Of The Questionnaire        27

Hypotheses        28

Data Collection        29

CHAPTER 4: ANALYSIS OF RESULTS        30

Descriptive Statistics Of The Sample        30

Statistical Analysis Of The Responses        34

Industries Use Practices Characterized As Target Costing        34

Price Externally Defined The Company        35

Committed Costs In The Development Phase        37

Formal Structure Of Multifunctional Groups        38

Use Of Multifunctional Groups        39

Relationship Level With Suppliers        40

Contingency Factors Influence Target Costing Process        41

CHAPTER 5: DISCUSSION AND CONCLUSIONS        48

Main Findings Of Research        48

Conclusion        51

Work Limitations        52

Suggestions For Future Research        53

REFERENCES        54

APPENDIX        56

CHAPTER 1: INTRODUCTION

Modern business environment is very competitive and one cannot survive without creating a competitive advantage. In manufacturing industry, cost management is the area that can help to develop and enhance the competitive advantage. The efficient and effective way to control the cost that has been proved successful is target costing. Target Costing (TC) is regarded as one of the cost management system that ensures the competitiveness of product in terms of cost, development and design. In literature it is defined as the multidisciplinary technique which is used to manage and control product cost shared across organizational function by individual efforts. In recent days, several manufacturing companies across the globe have paid attention to implement target costing and for this they have changed their organizational capabilities in order to achieve substantive results of target costing (Rains, 2011). 

Target costing is used worldwide and research in the field of target costing, organizational capability and performance, product cost improvement and product quality is being conducted across the globe. We have very little research study of target costing in the region of Gulf Council Countries and especially in Bahrain, no academic as well as professional systematic effort has been taken to identify the effectiveness of target costing.

Background of Research

Many companies in Bahrain face pressure from customers and competitors to keep prices low. Customers threaten to stop buying or sponsor to competitors if the company raises prices. These companies may also face rising costs, reducing their profits on every item they sell. Develop different tactics to increase their profits. Some use target costing strategy to increase profits without affecting the price. These companies receive several benefits of using this approach.

The target costing involves an inverse analysis of the product, based on the sale price. The company considers the expected price for each unit and desired their benefit on the subject. Subtract the desired benefit of the selling price to determine the target cost per unit. It brings together representatives from various departments to participate in a team to achieve the target cost. The team leader starts with information on the current cost and estimated the amount of cost that needs to be removed. Together, the team comes up with ideas to reduce costs and reach the goal. One benefit of target costing falls on the side focusing proactively in price. By applying a strategy of target costing, the team aims to reduce the cost of the product before the company starts losing money. This reduces the total losses incurred by the company. The alternative, less beneficial approach is reacting to pressure from customers and focus on cost reduction after the company starts to lose money. Therefore, there is need of in-depth study of target costing in Bahrain perspective. This study will help companies to reduce their cost of producing each unit and ultimately it will make them competitive not only in local market, but also in international market.

Research Contents

In previous research, literature review about the “Target Costing in Bahrain” was analyzed. Initially, the concept of target costing was defined and its historical development in different companies. After that target costing in Bahrain was described, and it was learned that target costing is strictly applied in 8 manufacturing companies (Juhmani 2010). Another study found that target costing is ineffective for small companies and large companies are unaware about the advantages of it. Therefore, these large companies that have the potential of applying target costing remain out of this approach. There are three well-defined strategies that are commonly used as competitive strategies e.g. confrontational, time and cost effective. Interestingly, 70% of the total companies in Bahrain use cost effective strategy in order to remain competitive in the industry. This shows there is significant potential in the manufacturing sector of Bahrain. The last section of literature review consists of advantages and features of target costing. The advantages are; low cost, high quality, enhanced functionality, incorporation of customer needs, and applying of latest trend in products. These all advantages are the sign of form’s profitability and survival in long-term.