Target costing is a pricing strategy applied by firms. It is identified with cost management tools that enable the reduction of the overall cost of a product in the life cycle of the product. Target costing applies research and design, production and engineering aspects. It assists the firm to identify the maximum amount of cost incurred on the product considering that the firm will attain the allocated profit margin for that particular product at a specified selling price. The traditional application reflects cost plus pricing of materials, labour input, overhead costs plus the profit desired in order to get the selling price (Avis, 2009 p 270).
Letscommunication limited will incorporate target costing by calculating the mobile phones anticipated selling price, this will be deducted from the desired profit. Target cost of the mobile phones equal to anticipated selling price-desired profit (Banerjee, 2006 p 886). The mobile phones development team in Letscommunication limited will be accorded the responsibility of designing the mobile phones so that to incorporate the target cost. The target costing process enables the determination consumer wants and the sensitivity of the prices, setting appraise selling price, determining the target cost, consideration of employees and distributors plights. This will enable Letscommunication to design the right mobile phones considering tradeoffs to meet target costs (Barringer 2003 p 6).
Target costs will enable Letscommunication to attain proactive approach to management of costs, orientation to consumers, breaking barriers between departments, empowerment of employees, awareness of employees, enable suppliers partnerships, reduce activities related to non value added activities, foster activities related to lowest cost value and save time on the market. This will enable the Letscommunication limited sell mobile phones to the supermarkets and make significant sales. It will also enable reduction of costs associated with the mobile phone production.
Life Cycle Costing System
Life cycle cost analysis refers to life cycle assessment and whole life cost. Life cycle assessment is identified with the valuation and investigation of environmental aspects of a service or product which is necessitating by its existence. Whole life cost is identified with the total cost of ownership in the life of the asset. This is commonly referred to as the cradle to grave, or at times referred to as the womb to tomb (Drury, 2007 p 541).
The benefits associated with life cycle costing are that the system encourages efficient systems in purchases and the associated costs, for example: delivery, commissioning and installation. Life cycles costs will enable Letscommunication to manage operating costs effectively. It will also assist the Letscommunication manage the mobile phone production systems effectively. Life cycles costing are associated with the purchase price of a good or service in the process of procuring, disposing and owning. Life cycle costing is heavily affected by the environment factors. Environmental performance influences the costs of a service or product in the whole lifetime. This is referred to as the life costing approach (CIMA, 2005 p12).
Life cost cycle will enable Letscommunication limited make the costs on mobile phone become visible. The operating costs will be observed and monitored effectively. The system will allow analysis of business functions interrelationships. This will drive low purchasing costs leading to improved service costs in the future (Banerjee, 2006 p 887). The expenditures in the production stages in the mobile phones will identify which will enable the public authorities make predictions on the budgets.
Letscommunication limited will improve the production of mobile phones significantly. The change from the absorption costing system to life cycle costing and target costing will enable the company manage costs and increase production. The application of the systems will come with challenges but Letscommunication will significantly benefit (Barringer, 2003 p 8). Letscommunication will enhance product profitability.