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