th its globalisation strategy, MB decided to stay in close proximity with its customers by setting up new manufacturing plant in the U.S.
             3.1 What is Target Costing and Target Costing process?
             Target costing is a cost management concept that has been developed and practised in Japanese companies since 1970s (Peter Horvath, 1993, Page 2). It starts at the product planning stage where market price is formulated by evaluating market and competitive research and deducts the desired profit margin that the firm wanted to earn through a profit planning process. The result is the target cost which is defined as the highest acceptable cost of a product for the quality level defined by customer requirements and competitive constraints (Peter Horvath, 1993, Page 6; and see appendix 6 for TC equation). Next, the target cost is compared to the drifting cost, which is the estimated cost of the product that can be reached by using existing technology and process standards (Peter Horvath, 1993, Page 6). The difference between these two costs is the goal of the target costing process. By integrating engineering technique, Value Engineering (VE), into TC can close the gap between target cost and drifting cost. TC is essentially a management tool and often developed as an instrument for cost planning.
             MB was facing problems of product development, cost efficiency, material purchasing and adapting to a changing market in early 1990s. TC can help to solve these problems because it focuses on new product development and aims to achieve cost reduction as early as in the product design phase. Therefore, TC was used in the AAV production project. They believe that a superior new product at a reasonable low cost could no doubt become highly competitive in the market.
             As mentioned in the case, "MB's strategic objective was to deliver products that were
             ...