▪ 1. Target costing

1.1 Introduction to target costing

Target costing means setting a target cost for a product, having identified a target selling price and a required profit margin.

It is usually used in a competitive market where selling prices must be competitive.

1.2 Calculation logic

Traditional approach

Selling price = production cost + required profit margin

Target costing

Target cost = target sales price - required profit

Cost gap = current cost - target cost