Printworx Target Costing Case

870 Words 4 Pages
Target costing is a pro-active cost control system. There is no cost slashing rather there is continuous pressure to keep the costs of a product to a minimum. Target costing sets the selling price of the product by analysing the external environment, its competitors, customer reviews, requirements and their willingness to pay. The target profit is then determined from the predetermined selling price and this results in the target cost. The target costs is then compared to the expected unit costs to ensure that the target cost is being met and if not what needs to be adjusted to get to the required target cost. The target cost is reduced for the remainder of the products life (continual cost reduction) and is revised perhaps monthly. Functional …show more content…
The aim is to produce a target cost which is less than the target selling price. The target selling price of the new items should be fairly easy to determine by observing what customers require, what competitors are producing, competitors prices for such products and the prices customers are willing to pay for such products. The selling price is also affected by the sale volume. The higher the sales volume, the lower the selling price can be, resulting in a lower target cost. The selling price will be easy to determine wince they are looking to get into a market that is already established, observing competitor prices in the market will assist in determining the selling price. The profit requirement will be determined by the fact that Printworx expects to be successful through its existing business contacts, if it controls its costs. Once the selling price and profit margin is set the target cost can be determined. The total target cost should be split between the various departments involved in the product and ensure that each department stays within its target cost. Cost savings begin from the beginning of the process in target costing and need to continue into the production the budgeting process continuously till the end of the …show more content…
Firstly, Printworx is looking to enter into a market that is already well-established with the new products. Competition would already exist and therefore Printworx would need to research as to what the current prices for such products are. Research of customer needs, wants, willingness to pay and its current prices is imperative as Printworx pricing would depend on this. Once the competitors prices are knows Printworx would need to analyse the potential marginal costs (variable costs) associated with the new products to determine the final selling price of the profit that would maximise profit. The selling price set would have to be low enough as to attract customers to Printworx stores but also sufficient enough to make a profit. Secondly, Printworx seems confident that it will be successful based on its existing business contacts as long as it controls its costs. The costs of a product cannot be determined with accuracy as it changes all the time. The total costs of a product are not determined by demand or the potential consumers it may have only. The marginal cost in the short term would have to be sufficient to result in a selling price that maximises profit for

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