Question

17. Explain target costing as it applies to the development and pricing of a new product.

Answer 1

Answer:-Target cost is the difference between estimated selling price of a proposed product with specified functionality and quality and the target margin. This is a cost management technique that aims to produce and sell products that will ensure the target margin. It is an integral part of product design,

Target costing may assist control of costs and pricing of product as under:-

1. Target costing considers the price that ought to be charged by a company to achieve a given market share.
2. Target costing should take life cycle costs in to consideration.
3. The target cost may be used for controlling costs by comparison.
4. Encourages selection of lowest cost value added activities.
5. It is must develop system for reducing costs during the planning, design & development stages of a product life cycle.