Resources  ❯  Accounting Terms

Target Costing

[TAR-git KAW-sting]

What is the definition of Target Costing?
A pricing method that identifies the competitive market price of a product, determines the desired profit, and calculates the target cost by subtracting the desired profit from the market price.
Using Target Costing in an Example

In target costing, if a company wants to sell a new electronic device in a competitive market where similar devices are priced at $300 and desires a profit of $50 per unit, the target cost for producing the device would be set at $250. This target cost includes all expenses like production, marketing, and distribution.

Using Target Costing in a sentence

The product development team used target costing to determine the feasible production cost that would allow us to price our product competitively while still achieving our desired profit margin.

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