Target Costing
Finance
Target Costing
Cost-management approach that derives allowable cost from market price minus required profit.
Examples
- 01Using target costing, the team sets a maximum cost of EUR 80 for a new coffee machine sold at EUR 199 with a 40 % margin.
- 02In target costing, progress is reviewed at each design gate, with a cost estimate for every main component against its share of the target.
- 03When the cost estimate is EUR 9 above the target costing figure, the team redesigns the housing instead of accepting a lower margin.