42. Stages of target costing 1. Determine the target price which customers will be prepared to pay for the product 2.Deduct a target profit margin fro the target price to determine the target cost 3. Estimate the actual cost of the product 4.If estimated actual cost exceeds the target cost , investigate ways of driving down the actual cost to the target cost
43. Target costing-Continues Customer oriented approach Used by Japanese copanies and recently adopted by Europe and the USA. Recently call canters are trying to adopt …show more content…
48. Problems 1. Illustration of target costing-Management and cost accounting by Colin Drury-page 948
Target costing is defined as the cost management tool for reducing the overall cost of a product over its entire life-cycle with the help of production, engineering, research and design. When a new product is launched into the market it starts to compete based on its new technology, concept, and/or service. The basis of competition is emerged to areas such as cycle time, quality, or reliability.
Target costing a method that is reverse of Target Pricing. Under target costing a manufacturer would start with a target price which is set by adding a profit margin to the actual cost. If it product is not easy to sell at that price, then the manufacturer would resort to target Costing. Here the market price for similar products is taken as a base and then the desired profit is deducted from this to arrive at a target cost. The target costing is a systematic process of cost management and profit planning. There are six key principles of target costing. They are: * Price-led costing. Under this principle the market prices are used to determine the target costs. Target costs are calculated using a formula-- market price - required profit margin. * Focus on