{"id":23987,"date":"2024-09-26T13:34:52","date_gmt":"2024-09-26T10:34:52","guid":{"rendered":"https:\/\/fractory.com\/?p=23987"},"modified":"2024-11-08T17:10:13","modified_gmt":"2024-11-08T15:10:13","slug":"target-costing","status":"publish","type":"post","link":"https:\/\/fractory.com\/target-costing\/","title":{"rendered":"Target Costing: A Blueprint for Procurement Engineers"},"content":{"rendered":"

Achieving cost efficiency while delivering high-quality engineered solutions is essential for success. Target costing is a strategic approach that integrates cost management into both product design and development, ensuring that products are not only technically sound but also competitively priced<\/strong>. By employing a target pricing strategy from the outset, companies can manage costs more effectively and enhance their overall profitability.<\/p>\n

What Is Target Costing?<\/strong><\/h3>\n

Target costing strategies ensure that cost management is embedded into the design process from the start. Unlike traditional costing approaches that determine costs after the design phase, target costing begins with the end price in mind<\/strong>. This involves setting a target selling price based on market research and desired profit margins, then working backward to determine the maximum allowable cost that will still enable the desired price and top profit margin.<\/p>\n

Formula for Target Costing:<\/strong><\/h3>\n

Target Cost = Market Price – Desired Profit Margin<\/strong><\/p>\n

This formula helps businesses align their product design and production costs with the target pricing strategy, ensuring that the final product meets the competitive price expectations and desired profit margins. By setting a target cost early, companies can avoid costly design changes and better manage their production costs throughout the product development cycle.<\/p>\n

\n Key Takeaways<\/span>\n