Target Costing

Semester IV Click to edit Master subtitle style

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Meaning

A target cost is the allowable amount of cost that can be incurred on a product and still earn the required profit from that product It is a market driven cost that is computed before a product is produced Nearly 80% of the costs of many products are committed at the 6/21/12 design stage. Therefore, the best

Target costing occurs within the product development cycle. This means it starts when a product is in its concept stages and ends when a product has been released for manufacturing Target costing is the process of translating a customers view of a product into an engineers view of a product
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Target Costing And The Product Development Cycle

Market Researc h

Competitiv e

Strategy

Product Strategy and Profit Plans

Product Concept & Feasibility

Product Design &

Developmen t

Production

and Logistics

Competitiv e Intelligenc e

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Establishment Phase of Target Costs

Market Research Define Custome r Niche
Understan d Customer Requireme nts

Market Price
Define Product Feature s

Target Cost Require d Profit

Analysis

Competit or

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Attainment Phase
1.

Compute Cost Gap

Initial cost estimates Compare to target cost Design product processes Perform value engineering Perform cost analysis Estimate achievable cost

2.

Design costs out

3.

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Produce

Target costing Vs. Cost plus pricing

Target Costing Cost-plus Pricing Competitive market considerationsMarket considerations not part of drive cost planning. cost planning. Prices determine costs. Design is key to cost reduction. Customer reduction. input guides teams Costs determine price. Waste and inefficiency is focus of cost reduction efforts. costCost reduction driven. is not customer

Uses cross-functional manage costs. Supplier involved early.

toCost accountants are responsible for cost reduction. Suppliers involved designed. after product

Involves the value chain in costLittle or no involvement of value planning. chain in cost planning. 6/21/12