An improved target costing technique by considering the lower confidence interval of the C_pm index

Abstract

This study takes into consideration the lower confidence interval of the C_pm index to extend the target costing technique by reducing the sampling error. Instead of using the point estimate of the C_pm index, which would vary from time to time, the suggested approach is to use confidence intervals especially the lower confidence intervals to possibly reduce the sampling error. Therefore, an improved target costing technique is presented by applying the lower confidence interval of the C_pm index, Taguchi loss function and – R control charts to form goal control limits. The philosophy of the target costing technique is to relentlessly improve product quality and reduce costs such that a more robust product would become more competitive in the market. Finally, an example is provided to illustrate how the improved target costing technique works.

Keywords and phrases:

• Target costing technique
• Taguchi loss function
• lower confidence interval
• control chart
• goal control limit
• process capability