Research on the Integration of ABC/ABM to Target Costing

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With this research, I have investigated the possibility of integrating ABC/ABM (Activity-Based Costing/Activity-Based Management) to Target Costing. Target Costing is a cost management that intends to reduce a cost, mainly a direct cost, at the early stages of the product development process. On the other hand, ABC is a cost management that intends to manage indirect costs. Both are strategic cost management methods. But they have been argued separately so far. So, I investigated the cost management practices at Japanese enterprises implementing Target Costing, that is, how indirect costs are managed, and whether a thinking of ABC is adopted to the cost allocation.In 1997-1998, I investigated the following industries : electric/electronics, office machine, precision machine, automobile, and so on. In consequence, I found that there are some companies to try to trace the whole direct and indirect costs including R&D cost to a product model in order to confirm the profitability over the all life-cycle period, and some companies to try to reengineer the business process by the ABC information. And I was also able to recognize the extension of the manager's interest about ABC.Target Costing is diffusing widely in Japanese companies. However, in Japan, the implementation of ABC can be observed in a few enterprises only. Moreover, that remains in a special partial Project of improving operation process, not as a whole company system. And the positive integration of ABC to Target Costing could not be identified from this research.So, I examined the factor that ABC is not implemented so frequently in Japan. At the first part of the report, the basic concepts of Target Costing and ABC are revealed. At the second part, the necessity of their integration and the problems are pointed out, and some individual case studies are presented.