Target Costing (TC) is seen to be related to more than product cost reduction. It also includes product quality, functionality and lead time that, to a similar extent, should be seriously considered. Organisational capabilities (OCs), as a contextual variable, could affect organisational functions when, in the study assumption, it is supported by the balanced scorecard (BSC) model in relation to TC objectives. This study examines the relationship between OCs factors, decision on TC implementation and organisational performance in association with company strategy and industry type effectiveness in the Malaysian automotive industry. A questionnaire survey was used to collect data. In total, 515 questionnaires were distributed, while 201 questionnaires were collected. Of the number collected, 176 fully completed ones were used. The results revealed that all three levels of OCs, local, architectural and process capabilities, significantly reflected the OCs, which were found to be positive and significantly influencing the decision on TC implementation. Company strategy had a significant moderating effect on the causal relationship between OCs and the decision on TC implementation. There was a significant invariant between car makers and part and component makers in the local and architectural capabilities, but not in the process capabilities. The study has extended the TC literature in adopting BSC for measuring identified variables using Rasch Model outputs as inputs for SEM analysis and providing evidence on TC implementation and OCs in the Malaysian context.