* The importance index can now be compared to the cost information in step two to

identify components where cost reductions are needed, and components where
additional design features might be appropriate.

* The comparison above shows that far too much is being spent on the motor relative
to its value to the customer. In contrast, not enough is being spent on the frame,
relative to customer criteria.

* This information is a guide to the redesign of the product and to the determination of
the target cost for each component.

Benefits of Target Costing

* Target costing can be beneficial because it :
1. Increases customer satisfaction, as design is focused on customer values.

2. Reduces costs, through more effective and efficient design.

3. Helps the firm achieve desired profitability on new or redesigned products.

4. Can decrease the total time required for product development, through improved
coordination of design, manufacturing, and marketing managers.

5. Can help provide a competitive edge in times of economic recession.

6. Can improve overall product quality, as the design is carefully developed and
manufacturing issues are considered explicitly in the design phase.