TARGET COST Meaning and
Definition
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Target cost is a strategic costing approach used by businesses to determine the maximum allowable cost for a product or service, considering the desired profit margin. It involves setting a cost goal or target during the product development phase, which aims to ensure that the product can be sold at a specific price while attaining the desired profitability levels.
The target cost is calculated by deducting the desired profit margin from the expected selling price. This predetermined cost forms the basis for the subsequent product design and production processes. It enables companies to align their cost management strategies with market demands and customer preferences.
Target costing promotes cost control and cost reduction throughout the entire product lifecycle. It encourages cross-functional collaboration among various departments, such as marketing, design, engineering, and manufacturing. By involving these stakeholders from the early stages, companies can collectively work towards achieving the target cost.
Furthermore, target costing involves a continuous evaluation of costs throughout the product's life cycle. It emphasizes cost planning and monitoring, allowing businesses to identify cost deviations and take necessary corrective actions promptly.
Implementing target cost management can bring multiple benefits to organizations, including increased competitiveness, improved customer satisfaction, and enhanced profitability. By focusing on cost reduction and value creation, businesses can deliver products that meet customer expectations at the right price, while still ensuring profitability.
Common Misspellings for TARGET COST
- rarget cost
- farget cost
- garget cost
- yarget cost
- 6arget cost
- 5arget cost
- tzrget cost
- tsrget cost
- twrget cost
- tqrget cost
- taeget cost
- tadget cost
- tafget cost
- tatget cost
- ta5get cost
- ta4get cost
- tarfet cost
- tarvet cost
- tarbet cost
- tarhet cost
Etymology of TARGET COST
The etymology of the word "target cost" can be understood by breaking it down into its constituent parts:
1. Target: The word "target" originated from the early 14th century, derived from the Old French word "targette" meaning "a small shield". It later evolved to mean "a mark to shoot at" or "a goal to aim for". One can find further roots of the word in the Middle English word "targe", meaning a small round shield used for defence.
2. Cost: The word "cost" originated in the late 13th century, derived from the Old French word "coste" meaning "a side". It initially referred to the cost of production as the "amount of effort or loss endured". Over time, the meaning shifted to its modern usage, denoting the price or expenditure required to obtain something.
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