deling tool. After negotiations, however, if Continental still believes the supplier’s costs are too high, it might consider bids from other suppliers.Р TARGET COSTING STEPS AT CATERPILLARР panies have the tools and systems in place to support target costing, they often develop a standardized approach for achieving their target costing objectives. Caterpillar offers a good illustration to highlight the target costing process for one of its new products. For this particular vehicle, management set the target cost at 94.6% of parable model, creating an initial gap of 5.4%. The cost of parable model is based on current manufacturing capabilities. Therefore, to achieve the target, costs must be reduced by 5.4%.Р Current costs for parable model 100.0%Р Target cost for new productР Cost gap 5.4%
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