Application of Target Costing and Performance Analysis: Evidence from Indian Automobile Industry

Purpose: Instead of observing competition among competing companies, manufacturing companies must focus on
difficulties and the moment of adopting technology and techniques. Companies must implement improved cost
accounting procedures to reduce product and service expenses in order to make the vehicle sector viable in India.

Objective and Methodology: The applicability of Target Costing (TC) in Indian automobile businesses is investigated
in this study. Target Costing was used as a dependent variable in this study, whereas Profitability, Growth, Net
Tangibility Assets (NTA), EPS, and Firm Size were used as independent variables. The study used a convenience
sample of the top 10 automobile companies listed on India's BSE, with panel data spanning the years 2014-15 to
2018-19.

Data was examined using descriptive statistical analysis, Pearson's Correlation, Simple Regression, and Multiple
Regression analysis, as well as the SPSS software.

Target costing:

Target costing is a strategic cost accounting technique that is used for production management and cost control
from the beginning of the production life cycle to maximise product profitability. There are a variety of definitions for
target costing, the most of which characterise it as a practise used in a competitive corporate environment to
decrease primary costs and achieve the targeted profit margin. Target costing is an efficient system for determining
product cost for a chosen product with accurate quality and performance that is to be estimated in order to
accomplish the estimated profit from the projected sales price, according to a key definition.

Application of Target Costing Stages:

1. Determine the new product's selling price, then research the market for predicted sales volume, and finally set a
profit objective.

2. Calculate the goal cost by subtracting the profit from the selling price.

3. Conduct a practical cost analysis for single and multiple product processes.

4. Determine the product's projected cost.

5. Cost comparison between predicted and desired costs.

6. If the projected cost exceeds the goal cost, repeat the cost analysis to reduce the predicted cost.

7. After calculating the goal cost, make the final choice to launch the product.

8. Organize the manufacturing costs during the production stage and use all available methods to reduce the total
cost.

Findings: Pearson's correlation result revealed a negative association between the influence of target costing on
profitability and profitability. Similarly, the impact of target costing on return on sales was investigated using simple
regression analysis, which found a positive correlation. Finally, the impact of target costing on financial performance
was investigated using multiple regression results, which revealed a positive correlation with Revenue from
Operations; Profitability; Return on Sales (ROS) and Growth, as well as a negative correlation with Margin from
Operations; ROA; Net Tangibility Assets(NTA); EPS and Firm Size.
Conclusion: The study examined the significance association between target costing and profitability of automobile
businesses in India. Pearson's correlation revealed that the variables have a negative relationship. Furthermore,
according to Pearson's correlation, target costing has a significant impact on the profitability of vehicle
firms. Furthermore, a simple regression analysis demonstrated a positive relationship between target costing and
Return on Sales (ROS) for Indian vehicle companies.