Electronics: A case study of economic value added in target costing

Whilst target costing and strategic management accounting (SMA) continue to be of considerable interest to academic accountants, both suffer from a relative dearth of empirically based research. Simultaneously, the subject of economic value added (EVA) has also been the subject of little research at the level of the individual firm.The aim of this paper is to contribute to both the management accounting and value based management literatures by analysing how one major European based MNC introduced EVA into its target costing system. The case raises important questions about both the feasibility of cascading EVA down to product level and the compatibility of customer facing versus shareholder focused systems of performance management. We provide preliminary evidence that target costing can be used to align both of these perspectives, and when combined with other SMA techniques it can serve as “the bridge connecting strategy formulation with strategy execution and profit generation” (Ansari et al., 2007, p. 512).

► We find that calculating EVA at product level is highly problematic.
► We show that management accounting is potentially useful for managing customer value.
► We conclude that EVA highlights new cost savings in target costing.
► Further research is needed on ways of integrating customer and shareholder values.