Using the Rasch Model to Measure Malaysian Companies’ Capabilities toward Target Costing Implementation

  •  Hussein H. Sharaf-Addin    
  •  Normah Omar    
  •  Suzana Sulaiman    


Target Costing (TC) has been widely known as a cost management technique to manage product costs during theearlier stages of product life cycle. This study aims to measure Malaysian companies’ capabilities towards TCimplementation stages associated with industry type and company strategy effectiveness. Among 380 Malaysianautomotive companies, 48 were involved in filling the questionnaire which includes six constructs representingthe six common stages of TC implementation adapted from Ellram’s (2006) theoretical model. RaschMeasurement Model (RMM) was used to analyze the data collected. The results revealed acceptable ability forthe responding companies towards TC implementation stages especially Car makers and when employing theConfrontation strategy, except some capabilities required to follow-up TC activities in achieving cost reductionobjective. All the six stages had different level of implementation difficulty, stage 5 (closing the gap betweenallowable target cost and estimated costs) was the most difficult stage while stages 3 (Computation of products’allowable target cost) and stage 1 (identify product characteristics) were the easiest ones. Suppliers’ involvementin providing alternative design was most difficult, whereas identify customers’ expectations before design stagewas the easiest one to be implemented. The study has provided evidence on TC implementation in Malaysiancontext and added a new idea to the knowledge regarding the useful usage of RMM in management accountingresearch.

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