Target Cost Formula

Target Cost Formula

Target Cost can be calculated by the following Formula. Target cost concept is widely used in development of new product. This is an effective tool to control the cost of the new product.

Target Cost = Target Price-Target Profit

Example

Target Sales Price of Product= 120

Target Profit of Product= 70

Calculate Target Cost

Solution

Target Cost = Target Price-Target Profit

=120-70

=50 (Target Cost)

Cost of Goods Available for Sale Formula

Cost of Goods Available for Sale Formula

Cost of Goods available for sale is calculated by the following formula. This concept is quite different from the cost of Goods sold.

Cost of Goods Sold=Opening Finished Goods + Good Manufactured

Example

Opening Finished Goods =                   15,000

Goods Produced =                              20,000

Closing Finished Goods                        15,000

Solution

Opening Finished Goods =                   15,000

Add: Goods Produced =                       20,000

Cost of Goods available for Sale      35,000