Applying target costing to the service sector: Sunline Auto Insurance case

The application of target costing in a service firm is rarely taught in managerial accounting courses, in contrast to the focus on manufacturing-related cost topics (e.g., Everaert and Swenson 2014). Educating future managers in the use of service-sector target costing is important because it provides knowledge on how profitability can be improved through a considered approach to cost management. The case study objectives are to improve students’ ability to analyze and explain important areas of cost, assess and apply target costing, and strategically consider costs. Our testing indicates support for case efficacy in the context of these objectives. The case uses an auto insurance firm to illustrate how target costing can be applied in the service sector. Students are provided with information on cost data and the target-costing technique, allowing them to assess costs, apply the target-costing techniques, and develop strategic cost management focus and recommendations.