Introduction:

Cost engineers must use enhanced techniques for planning and managing
resources, costs, and profitability in order to successfully execute total cost
management (TCM) in industrial environments. The cost system is critical
since it assures the continuity and viability of an organization. The cost
system's quality, particularly in industrial enterprises, is determined by two
factors: the cost of its application (as low as possible) and its accuracy in
estimating costs.

In recent years, the financial community has improved the methods for
managing the economics of production by introducing concepts such as
target costing and activity based costing (ABC).

The purpose of this research is to look at how potential factors influence the
adoption of ABC systems. According to certain findings, the employment of
ABC systems is favorably linked with the amount to which strategic
management accounting approaches are used and with cost structure.

The needs of enterprise-level decision makers didn't seem to be met by

conventional cost methods in the 1980s. Growing indirect costs, which now
make up a significant portion of total expenses incurred by economic
enterprises, have been a feature of this time period and before.

The mid-1980s saw the birth of the ABC model through a number of
businesses that have served as case studies at Harvard Management School,
including Siemens EMW (A), Kanthal (A), John Deere Component Works
(A) and (B), as well as through articles by Cooper, Kaplan, and Johnson and
the book (Kaplan and Johnson, 1987).

Activity-Based Costing (ABC) is a costing and accounting method that

allocates expenses to specific activities and then assigns those costs to
products or services depending on how those activities are used
ABC said we spent resources and what consumes resources are activities and
what consumes activities are product. Disagreeing with the traditional model
which stated allocating resources to products directly.

ABC it recognizes today that manufacturing is no longer labor intensive.

Also it recognizes that manufacturing overhead are driven by product
research and development, design, technology and after sales service. All
which focus on improving the quality of the product.

Thus the ABC methodology provides a foundation for cost tracing, analysis,
and management, which entails making quality and accurate operative and
strategic decisions as a basis for the longterm orientation of a company.
ABC is also complementary to the widely accepted technique of strategic
planning and strategy implementation known as Balanced Scorecard (BSC).

ABC, according to Cooper and Kaplan, assists managers in determining

where to take activities to increase earnings. Studies in the West have
reported an adoption rate of ABC in the range of 6 per cent to slightly more
than 50 per cent.

Previous studies (Cooper and Kaplan, 1998; Smith, 1995) described the
main uses of ABC as improving product costing, and identifying non-value
added activities and their associated costs, thus providing opportunities for
reduction or elimination. According to Kennedy and Affleck-Graves (2001),
will in turn lead to increased profits. Implementing ABC, on the other hand,
may be time-consuming and costly.

Due to the expensive cost, many ABC systems are rarely updated, which
results in outdated activity cost driver rates and incorrect estimates of
processes, products, and customer costs (Kaplan & Anderson, 2003). ABC
makes an assumption that not all products are created equally, since size,
parts and options require different activities to produce the product.

Kaplan and Anderson introduced the concept of time-driven activity-based

costing. The concept was originally developed by Steven Anderson in 1997
and practiced through his company.
Time-Driven Activity-Based Costing (TDABC) is an Activity-Based
Costing (ABC) version that streamlines the implementation process by
relying on time estimations rather than thorough activity analysis. TDABC
is founded on the assumption that the majority of costs in a process are
caused by the time spent doing operations, and hence emphasizes time as the
key cost driver.

TDABC is especially beneficial for businesses with complicated processes

or a large number of goods or services since it simplifies implementation
and allows for more precise cost allocation. TDABC, on the other hand, may
be less accurate than regular ABC in instances where expenses are
determined by complicated activities rather than time.

Generally, ABC and TDABC are both efficient ways for assigning costs to
activities and processes inside an organization, but the method of choice is
determined by the sophistication of the procedures and the nature of the
expenses associated.

Strategic cost management is the process of identifying and implementing

measures to reduce expenses that are in line with a company's overall
strategic goals.

The goals of strategic cost management are to maximize resource use, cut
costs, and boost profitability. This is accomplished by looking at the
organizational cost drivers, finding areas where waste may be cut down or
eliminated, and putting best practices into action.

There isn't one accounting system that works for all businesses in all
situations, which serves as an explanation for the variety of management
accounting techniques. Instead, it indicates that a cost accounting system's
distinctive characteristics will rely on the specific circumstances present
inside a given firm.

BACKGROUND:
Target costing is, at its core, a profit-management method. Its purpose is to
ensure that new products generate enough income to meet the company's
long-term financial objectives. This aim can only be achieved if products are
manufactured at a low enough cost and are designed to fulfill the demands of
the firm's customers. According to (Dekker & Smidt, 2013), target costing is
designed to increase the company’s competitiveness.

TARGET COSTING STEPS:

Step one: we begin by specifying product that the company wishes to sell,
this will involve an analysis of the market and a determination of what
product features are of interest to customers.

Step two : Setting the price at which the product will be sold. This will be a
market driven price based on what a customer is willing to pay for the
product or their perceived value of that product this is referred to as the
target price.

Step three : The company then calculates the profit that is required from the
sale of this product. This profit is usually determined by what the company
investors may deemed to be an acceptable return on their investment this can
be referred to as the required profit or the target profit.

Step four : we determine the target cost. This is calculated by subtracting the
required profit from the product selling price. The target cost represents the
highest acceptable cost of the product if the estimated cost of that same
product is greater than the target cost then a cost gap exists.

Step five : This cost gap needs to be closed. By meaning review of the cost
incurred during the products design and production stages. It is important
however that the quality of the product is not impaired as a result of any cost
reductions.

finally in step six : if a cost gap still exists, the company could consider
negotiating with customers in order to determine whether the manufacturer
of the product proceeds.
The benefits of ABC costing on strategic management are enormous. ABC
calculates the actual total product cost, identifies the cost of activities, and
assigns indirect costs to items more accurately. In terms of cost
management, it leads to lower overhead and more accurate budget planning.
It also improves decision making in respect to product costs.

Traditional costing systems concentrate on expenses incurred during the

manufacturing process, such as material, labor, and production overhead.
Traditionally, expenses are assessed on a quarterly or fiscal year basis. In
contrast, life cycle costing analyzes all expenses that a product will incur
from the design stage all the way through to its retirement. In other words,
life cycle costing focuses on pre-production costs and post-production costs.

(LCC) is used to calculate the total cost of a product or service over the
duration of its entire life cycle. LCC seeks to discover the most cost-
effective solution by considering the total cost of ownership across the
product's life cycle. LCC enables companies to make more informed
decisions about investments and purchases by accounting for all costs, even
those incurred after the initial purchase.

LCC may be used to evaluate a broad range of items and services, including
buildings, vehicles, and industrial equipment. It is especially useful when a
product or service has a high initial cost as well as significant maintenance
costs during its lifetime.

Literature Review

ABC is frequently mentioned in the literature as an effective strategy for

target costing. Cengiz (2010). According to Lee (Lee, 1994), target costing
is compatible with ABC, and target costing provides cost information
essential for target costing realization.

(Koons F. J., 1994) emphasized the importance of strategic planning in

target costing being based on the identification, measurement, and
management of the actual sources of costs.
On three points, target costing is connected to activity-based costing.
Horvath (1993,) The first one is to estimate the cost. Original activity costs
can be used to assess activities that are used on indirect areas depending on
the product. The second, activity-based costing may be used to assess the
cost drive of product planning and design offer.

The third method, activity-based costing, can be utilized to achieve cost

targets, identify the activities necessary to achieve certain product functions
and, as a result, aids in the determination of the best value area by shifting
activity costs to product (Horvath, Gleich, & Schmidt, 1998).

The ABC application will offer more precise data in the TC model.
Furthermore, it will allow businesses to compare product features with the
cost of developing these features by directly determining the resources and
costs of the manufacturing processes; and it will allow businesses to monitor
operation times and quality costs at every stage of the manufacturing
process. Cengiz (2010)

Carolfi (1996) highlighted that ABC supporters assert that activity-based

costing systems provide precise information on the organization's value-
added and non-value-added activities, the costs associated with these
activities, and the drivers of activity costs.

According to Venieris & Cohen (2005) [23], ABC is best suited for
businesses using flexibility in production because it can more effectively
show cost causes as overhead levels rise. Furthermore, only when
sophisticated cost accounting systems, like ABC, are used can the
advantages of production flexibility be seen.

Activity-based costing (ABC) in particular has been viewed as an important

improvement to cost management, particularly in service firms, according to
Dimitropoulos (2007). Costing systems have developed significantly in
recent years.