Target Costing Process

Target Costing Process

1.                            Design

First step target costing is to study the Design and customer requirement are in detail. A product design is selected as per requirement of the customer. New feature are incorporated as per requirements of customers.

2.    Target Cost is set

Target cost is set for product keeping in view the price & profitability .it means target cost is calculated by subtracting profit from the selling price i.e. Target cost= selling price – desired profit level.

3.    Initial Development

Produce is initially developed keeping as per designed. The first designed is ordinarily not the final product and number of adjustment is required.

4.    Initial Development Cost & target cost

Initial development cost of product is compared with set target cost for identification of any gap in cost. If development cost exceeds the target cost, then there is cost Gap.

5.    Cost Gap is removed

Cost gap is removed by number of ways including changing the design, reviewing the supply chain, economies of scale, efficient method production.