ABSTRACT
The target costing process contains three major sections. It begins with market-driven costing, the purpose of which is to identify the allowable cost of future products. The allowable cost is the cost at which the product must be manufactured if it is to generate the desired profit margins when sold at its target price. Second, the product-level target costs are established. Third, the component-level target costs are established. Target costing begins with the long-term sales and profit objectives of the firm. The primary objective of target costing is to ensure that each product over its life contributes its planned share of profits to the firm's long-term profit objectives. The long-term profit plan is based on overall profit objectives that top management considers achievable. Target selling prices are set by taking into account the market conditions expected when the product is launched. Target selling prices are established within the context of the firm's long-term sales and profit objectives.
