This document discusses target costing, which is a process that develops costs for a product or service based on market considerations like the target price customers will pay. It involves estimating the target price, target profit, and target cost. Target cost is calculated as the target price minus the target profit. The key steps are computing the target cost, setting gross target sales and operating income, then determining the target cost per unit. The benefits are a focus on customers, cross-functional involvement, and commitment to innovation. Potential downsides include delays from overloaded features, and conflicts from pressure to excessively cut costs.

1. Target Costing
Rincy Joseph
Akshay Karnatak
Surbhi Gupta
Harpreet Singh

2. Origin of Target Costing

3. Key Terms
• Target Price - Estimated price of a product or
service which a potential customer will be
willing to pay.
• Target profit - The amount of profit which a
firm will like to make from a particular product.
• Target cost - Target price less target profit
from the product.

4. Definition
•Target Costing is the process
of developing cost for a
product or service based on
the market driven
considerations.

5. Key Points
price-led costing.
focus on customers.
focus on design.
cross-functional
involvement.
value-chain involvement.

6. Stages of developing the Target Cost

7. Computation of Target Cost
Gross Target Sales Revenue
= 2000units x Rs.80 per
unit
= Rs.1,60,000
Gross Target Operating Income = 10% on capital employed
= 10/100 x 1,60,000
= Rs.16000
Target Operating Income per unit = Rs.16000/2000 = Rs.8

8. Target cost per unit = target price target operating income per unit
Target cost per unit
= Rs.80-8
= Rs.72
Gross Current Cost
= Rs.1,50,000
Gross current cost per unit
= Rs.1,50,000/2000
= Rs.75

9. Reinforces at all levels
commitment to
produce innovative
products and services.
Maximum satisfaction
to customers
Benefits

10. Negative points
• Overload of features may lead to a number of
non value adding activities
• Delay in production
• Pressure to cut cost may lead to organizational
conflicts.

11. Thank you