Target Costing

Tags

finance

[see page 28, Pricing] a product based on the laws of supply-and-demand.

This is often an approach taken by price-takers. To earn a profit companies focus on controlling costs, setting a target cost that can make the desired profit.

We come up with a target-cost based on the market price and our desired profit, doing whatever we can to keep actual-cost below target-cost to maintain a steady profit.

See the practical example [see page 29, here].

Cost Reduction

Ways to lower actual cost to light up with target-cost.

• re-engineering a product
• increasing volume (reduce unit-cost)
• lower quality or reduced specifications