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Target Costing

In: Business and Management

Submitted By meminahanem
Words 1094
Pages 5
Introduction:

Domestic and international changes lead to changes in the business policies of manufacturing entities, regardless of the country or continent they belong to. In order to keep up with all changes, entities must be prepared to meet all challenges coming from competitors and clients, thus proving their flexibility in any business environment, whether turbulent or uncertain. Ensuring financial stability also requires adoption and use of an efficient management system.

1. What is Target Costing?
Target costing of a product or job is sum total of the variable cost targets fixed for each element of cost (material, labor, power, consumables etc.) required to be incurred for producing that product or job estimated on zero-base principles, plus the fixed cost targeted on the same principles, so that the total cost plus the estimated margin of profit is not more than the price the product is capable of fetching in the market.
Zero base principle is the variable cost incurred for producing zero units of the product and from that position what is the incremental variable cost for each unit plus the fixed targeted cost (Rent, Rates and taxes, advertisement, communication etc.) required to set up the facility to produce an estimated number of units.

2.Why is Target Costing important for corporations yearning to have market share and profitable future?

The Advantage of Target Costings:
1. We have a cost goal to achieve within the selling price, on realization of which there can be no loss.
Cost Optimization:
A primary advantage of target costing is that it allows you to analyze the best way to make or acquire products at the lowest costs. Minimizing costs is a common financial goal of any small business, regardless of whether they offer high, medium or low prices. Minimizing costs gives a small company financial flexibility to focus on achieving…...

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