Target Costing Concept

Target Costing Concept

Target costing is to provide new or improved goods to the customer with reasonable price (cost target). It means that cost of production must not exceed the maximum limit set by the management. These limits are set by the management keeping different factor in mind competition, profitability etc.

1.    Innovative New product

Target costing concept was introduced to meet the customer demand for improved goods. Cost can be more effectively controlled at design stage, and therefore this method is more relevant for new products.

2.    Design Stage

Target costing more focuses on design stage, because cost can effectively be controlled at this stage, once product is designed and launched, then it is very difficult to control costs.

3.    Maximum Cost limits

A limit for the cost is set for proposed product, because every product can only be sold at a specific price. Therefore a maximum cost for designing a proposed product is set keeping in view the desired price & profit margin.