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What will be the target cost of the product? Solution: In the above example, the total profit margin of the Target costing is a cost management technique. Target cost is the difference between target sales minus target margin. It is, thus, the difference between estimated selling price of a proposed product with specified functionality and quality and the target margin. About Press Copyright Contact us Creators Advertise Developers Terms Privacy Policy & Safety How YouTube works Test new features Press Copyright Contact us Creators Smartphones offer a great example of target costing, as they not only are built to a price point but also have to have their manufacturing processes constantly adjusted to make sure that the 2019-08-19 Target costing is the policy which increases the quality of the product, improving its characteristics and design and reducing the cost of its service to the minimum. For example, speaking about automobiles, the repairing of the car produced under the effect of the … 2020-08-15 Target costing is an attempt at the planning and development phase of a product life cycle, to attain a specified cost that is decided on by management.

Target costing example

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Target Costing Example Company ABC produces tumbler for a very competitive market, due to the similarity with many other suppliers. After conducting market research, the average price is $10 per unit. It is not willing to increase its selling price because it is hard to differentiate from other products in the market. Target costing is a method of strategic management of costs and profits. Target costing involves; setting a target or objective for the maximum cost of a product/service and then working how to achieve this target. Target costing is used mainly for new product development.

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In the above example, the calculation is as follows: Target cost = Selling price x (1 - Gross margin %) Target cost = 60 x (1 - 55%) Target cost = 27 The starting point is always the selling price which is then used to determine the target cost, as shown in the diagram below. For example, Cooper states: “The purpose of target costing is to identify the production cost for a proposed product such that the product, when sold, generates the desired profit margin.

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Target Costing, Automotive Sector. 1.
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Target costing, although its concept is used throughout the product life cycle, is primarily used and  2 Nov 2020 Then it subtracts the desired profit from the expected selling price to find the maximum allowable cost (the target cost). For example, if a  (Lockamy and Smith, 2000) Some companies, for example, Sony Corporation, build in more flexibility in establishing the desired profit or target profit margin. There  19 Jun 2019 Think of a dentist as an example of a service industry. – There is no specific ' product' that the costs can be easily measured for (the work is  focus on the costs incurred during the product's lifecycle; involvement of the entire value chain.

Target costing involves; setting a target or objective for the maximum cost of a product/service and then working how to achieve this target. Target costing is used mainly for new product development.
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28 Apr 2017 Target costing is the strategy to set a price point for a product and engineer it to that point. In doing so, profit is treated as any other cost. As such,  ABSTRACT This paper discusses the use and process of target costing for product development and cost management and why it should be used in product  This article considers these implications along with implementation guidelines. Examples of industries successfully using target costing are included. Ongoing  29 Apr 2019 Purchasing agents use benchmarking to prepare target price calculations for meetings with their suppliers, for example.