Target costing starts with external selling prices for the product or services and then works backward to calculate target cost by deducting required profit.
Standard costs are usually calculated for existing products and services.
What are target prices?
Home » Accounting Dictionary » What is a Target Cost? Definition: The target cost of a product is the expected selling price of the product minus the desired profit from selling it. In other words, target cost is really a measure of how low costs need to be to make a certain profit.
What is target costing and how is it different from the usual process of setting prices?
What is target costing and how is it different from the usual process of setting prices? a. Target costing is pricing that starts with an ideal selling price and then targets costs that will ensure that the price is met.
What are the advantages and disadvantages of target pricing versus cost based pricing?
The primary advantages of the cost-plus method are simplicity and predictability. A key disadvantage is that it sets a price without taking into consideration how that price will affect demand. The price it sets could be either too low or too high.
How is target costing applied to new products?
Target costing is a structured approach to determine the cost at which a proposed product with specified functionality and quality must be produced in order to generate the desired level of profitability over its life cycle at its anticipated selling price. Target costing is the first step in managing product costs.