Assessment of Target Costing Technique as a Profit Driver and Cost Management Tool.A Study of Steel Firms Operatinginnairobi, Kenya

Abstract

The purpose of this research study was to assess target costing as a profit driver and cost management tool for steel firms operating in Nairobi. Guided by three objectives, the study aimed to establish organizational challenges in the target costing implementation, to assess the effect of Target costing as a cost management tool and also to assess the contribution of target costing in profit growth. Key finding of this research study, which had a completion rate of (87.5%)indicated that (73.8%) of the respondents use target costing technique as a cost management tool and all adopters have implemented it for more than 5 years. Team and cross functional barriers emerged as the most outstanding organizational challenge to implementation caused by mandatory cost cutting which results to finger pointing in various departments. Lack of appropriate skills and training necessary to tackle emerging costing techniques was rated as the overall departmental challenges. As a cost planning tool, the research findings noted that Target costing identifies costs associated with a product with an aim of making very informed choices of options available. Providing firms with a rapid response mechanism to a product cost without compromising on the quality and having an all-inclusive cost management approach was identified as a way of effective cost management. Respondents across the steel industry reported a significant increase in profit levels a trend they attributed to successful implementation. From the research findings, the researcher recommends that the Topic of target costing be made broader with the inclusion of the same in textbooks and other publications from high school level and relevant training and skills be afforded to top level managers. The researcher further recommends that the Government should urgently invest in Steel industry in order to subsidize the cost steel products.