Target Cost per unit: Target cost per unit is the estimated or predicted long run cost per unit of production of any product or service that when sold at a desired target price would enable a company to achieve or attain a predefined targeted income per unit.
What is a cost target?
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 the target cost and how is it determined?
Target costing is an approach to determine a product’s life-cycle cost which should be sufficient to develop specified functionality and quality, while ensuring its desired profit. It involves setting a target cost by subtracting a desired profit margin from a competitive market price.
How do you find the selling price per unit?
To find price per unit from the income statement, divide sales by the number of units or quantity sold to determine the price per unit. For example, given sales of $500,000 for the year and 40,000 units sold, the price per unit is $12.50 ($500,000 divided by 40,000).
What are the steps in target costing?
Steps involved in target costing
- Market research. The organization conducts market research to understand and determine the wants of a customer.
- Identifying the market.
- Product features.
- Product design.
- Determine cost, margin, and price.
- Value engineering process.
- Improve designs.
- Formal approval.