“Montclair Paper Mill's Experiment With Target Costing” – A Case Study

2293 words - 9 pages

Please cite this Article as : , TARGET COSTING" - A CASE STUDY : Tactful Management Research Journal (Oct ; 2013)
Tactful Management Research Journal
Montclair Paper , organization , management , Manufacturing management .
Target costing affects profitability of an organization depending on the commitment of management to its use, the constant involvement of cost accountant in all phases of a product's life cycle, and the type of strategy the organization follows. Target costing improves profitability in two ways. First it places a detailed continuing emphasis on product costs through out the life cycle of every product. The management team is completely aware of costing issues since it receives regular reports from the cost accounting members of all design teams. Second, it improves profitability through precise targeting of the correct prices at which the company feels it can place a profitable product in the market place that will sell in a robust manner. This is opposed to the more common cost-plus approach under which a company makes a product, determines its cost, adds profit to cost and then does not understand why its resoundingly high price does not attract buyers. Thus, target costing results not only in better-cost control but also in better price control. A company's strategy can also have its impact on profitability. If it constantly issues a stream of new products, or if its existing product lines are subject to severe pressures, it must adapt target costing a central part of its strategy so that the correct prices are used for products and actual costs match those originally planned.
Montclair Paper Mill 1 is the oldest and smallest of the ten paper mills. The mill's huge paper machines are some of the oldest in the industry but being well maintained they still run well. The Montclair mill buys dry pulp which it converts into coated and uncoated fine paper for premium applications such as brochures catalogues magazines annual reports and labels. While developing viable strategies for Montclair's 1500 products its managers strive to exploit the mill's strengths and available market niches. Montclair's machines are 200 feet long and 20 feet wide. They differ in width and speed which determines capacity. The machines can produce various colours weights and grades of paper depending on pulp mix additives machine design, machine settings.
Target Costing is a disciplined process for determining and realizing a total cost at which a proposed product with specified functionality must be produced to generate the desired profitability at its anticipated selling price in the future. CIMA defines target cost as "a product cost estimate derived from a competitive market price. Target Costing is a disciplined process that uses data and information in a logical series of steps to determine and achieve a target...


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