Optimization of Product Costs in the Food and Beverage Business: A Target Costing Approach

Abstract

Purpose – The study aims to evaluate the feasibility of implementing the target costing method in a local food and beverage business, aiming to optimize product costs and boost product demand through cost reduction and pricing products below market prices. Design/methodology/approach – Interviews were conducted with business owners to develop standard recipe cards for the four products, and a comparison was made between current costs and target costs. Analysis of standard recipe cards for these products was performed to calculate material cost ratios, unit contributions, and contribution rates. The target costing method was implemented by adjusting the quantities of components and exploring supplier alternatives to reduce costs and increase target cost indices. Findings – The findings revealed that the target costing approach led to varying degrees of cost reduction and improved contribution margins for the four products. However, the desired enhancements in target cost indices were not fully achieved, highlighting the need for further assessment of supply, pricing, and material sourcing. Discussion – The study highlights the potential of target costing in optimizing costs and stimulating demand in the food and beverage industry. It also suggested that additional research and adjustments might be necessary to fully realize the benefits of the target costing method in specific cases. Furthermore, comparing costs across multiple businesses or considering franchise establishments in future studies could offer more insights into the effectiveness of target costing in different scenarios.