Target Cost – Tool For Planning, Managing And Controlling Costs

The target costing method involves implementing a homogeneous set of tools on cost planning, cost management and cost control. This method aims to reduce costs by knowing the different stages of a product cycle, analyzing the costs of each phase and improving the technologies and manufacturing processes. The managers of economic organizations are using the target costing method to determine with certainty the limit cost of their new products and to set a target price of the product in order to obtain a higher profit. The target costing method is not only a method of costing calculation but also a modern management method that uses evaluated techniques regarding market study, value analysis, reducing diversity, manufacturing technology and the relationship with suppliers and customers. Target cost is an estimated production cost, calculated on the basis of a forecast competitive selling price and a projected profit margin. It has values between the allowable cost, which is determined by the market according to the competition and the estimated cost, which is determined according to the existing means of production and the technologies used by the organization.