Target Costing vs Kaizen Costing
Target costing starts with the market; kaizen costing starts with ongoing process improvement.
Target costing
Target cost is often derived from expected market price minus desired profit.
Kaizen costing
Kaizen costing focuses on continuous incremental cost reductions during the production phase.
Timing
Target costing is strongest in design and planning; kaizen costing is strongest after production begins.
Exam strategy
Before production equals target costing; continuous operating improvement equals kaizen.
The takeaway
Target costing designs cost out before production; kaizen costing continuously reduces cost during operations.
Related Summit resources
FAQ
What is the core idea?
Target costing designs cost out before production; kaizen costing continuously reduces cost during operations.
What should you identify first?
Target costing starts with the market; kaizen costing starts with ongoing process improvement.
Why does this matter on the CPA Exam?
Compare cost management before production begins with continuous cost reduction during production.