Target costing

[mohsina]

Target costing is the process of determining the maximum allowable cost for a new product and then developing a prototype that can be made for that maximum target cost figure. (Garrison and Noreen, 2000).

Target cost = Anticipated selling price – Desired profit

Target costing principles:

1. Price-led costing.
2. Focus on customers.
3. Focus on design.
4. Cross-functional involvement.
5. Value-chain involvement.
6. Life-cycle orientation.

[munna99185]

Target costing is a pricing method used by firms. It is defined as a cost management tool for reducing the overall cost of a product over its entire life-cycle with the help of production, engineering, research and design. A target cost is the maximum amount of cost that can be incurred on a product and with it the firm can still earn the required profit margin from that product at a particular selling price. [wikipedia.com]


Sayed Farrukh Ahmed
Assistant Professor
Faculty of Business & Economics
Daffodil International University

[sajib]

Target costing:

Target costing is a process of determining the actual cost price of any product or service after considering the desired profit margin behind the same.

Formula:

Target Cost = Expected selling price – Desired profit

It helps in completing the product within the set price by changing the process for the same or by making the existing process more efficient.

The process of target costing is as below:

    Identification of customer needs and wants
    Selling price is planned for the needs.
    Target cost identified which is Expected selling price – Desired profit
    Product is designed, manufacturing process is fixed and suppliers are identified keeping the price in consideration.
    The sample product is produced that meets the target and the production starts for selling purposes and the product is launched