Limitation of Target Costing

 Since the target costing depends on the prediction of the final selling
price of the product, any error in it may cause the entire marketing
strategy failure.

 To achieve the target cost there is a possibility for the company to opt
for cheaper technology or materials which is not an advantageous
option in the long run and even becomes the greatest disadvantage.

 Target costing can create an unrealistic burden on the production

department when the estimated cost is too low.

 Failure of proper estimation of the quantity may lead to a loss when the
business fails to sell all the produced quantity.

When Target Costing can be used:

 To lower the costs of new products so that the required profit level can
be ensured.
 The new products meet the levels of quality, delivery timing and price
required by the market.
 To motivate all company employees to achieve the target profit during
new product development by making target costing a company wide
profit management activity.