Target Costing Steps

Target Costing Steps

Target Cost establishment consist of three steps. Target cost establishment may also be referred as target cost setting or target cost calculation.

1.    Price Determination

In First place the price of a product is decided. The product price is decided keeping in view the target market and competitive prices of close product.

2.    Profitability

Second step for establishing the target cost is to determine desired level of profit. Every business is operated for the profit and therefore a desired level of profit is to be incorporated for calculating target price.

3.    Target Cost

In third step target cost is set. The target cost is set by simple mathematical calculation i.e. selling price minus desired profit or profit rate.