How to calculate target costing

Target costing is technique of managing company profit whereby the company design the product at established cost in order to get desired profit from market selling price.

Target costing is calculated by establishing or researching on the market Price of planned product and plan the profit which the company expect to obtain from the price before subtracting the price to establish the target cost.

The company then make sure that the planned product are designed and produced at target cost in order to make the desired profit


Target cost = (market Price – desired profit)

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