A target cost is calculated by subtracting the desired profit margin from an estimated or market-based price to arrive at a desired production, engineering, or marketing cost. This may not be the initial production cost, but one expected to be achieved during the mature production stage. Target costing is a method used in the analysis of product design that involves estimated a target cost, then designing the product/service to meet that cost.
is a disciplined process for determining and realizing a total cost at which a proposed product with specified functionality must be produced to generate the desired profitability at its anticipated selling price in the future.
A method or establishing a cost objective for a product or service during the design phase. The target cost is determined by the following formula: Sales price - Target Profit = Target Cost
A way of establishing a cost goal for a product or service in the design phase. Target costing follows this formula: Sales price - Target Profit = Target Cost.
Target costing is a technique for product and service development in which the final price, including profit, is determined first based on market research. The product or service development is then planned to meet these targets. If it is determined that the target costs cannot be achieved, the project is discontinued.
The process of designing a product to meet a specific cost objective. Target costing involves setting the planned selling price, subtracting the desired profit as well as marketing and distribution costs, thus leaving the required manufacturing or target cost.
The traditional cost approach, i.e.'cost plus pricing' is inappropriate for today's liberalized environment. In traditional cost system,material, labour and overhead costs are measured and a desired profit is added to determine the selling price. The need has arisen to apply the technique named as target costing which has been widely used by Japanese firms since 1970s and which has recently received a considerable attention in the U.S.A. and European accounting literature.
