What Is Target Costing?

Target cost refers to an estimated cost set by an enterprise to ensure the realization of the target profit within a certain period of time and as the goal of all employees of the synthesis center. It is the product of the combination of cost prediction and target management methods. The concept of "synthesis" is used here to explain that the budget must be pursued by many departments and many employees. That is to say, the cost level control is taken as the goal of the work. There are many forms of the target cost, such as planned cost, standard cost, or fixed cost. Generally, it is more reasonable and scientific than the actual cost.

Target cost

Target Cost (Zielkostenrechnung)

When setting the target cost, we must consider the equipment conditions of the unit, the supply of raw materials, the original designed production capacity, the quality and technical level of employees, and so on. At the same time, we must pay attention to the external conditions of the enterprise, such as the market demand for its products. Situation, cost data of domestic and foreign objects, etc.

At present, all units know that cost reduction is the top priority of their work, and many units believe that their cost management is in place and has brought benefits to enterprises. However, the company's cost management work has the following misunderstandings compared with foreign companies:

the first,

Theoretically, adopting reverse engineering to set target costs and adopting target costs to carry out

The cost level to be achieved in a certain planning period based on the forecast and the requirements of the company's business objectives. It is a goal in a certain period of time in cost management. It is lower than the actual cost that has been achieved, but it can be achieved through hard work. The methods for determining target costs are usually:

Select a certain advanced cost as the target cost. It can be the advanced cost of the same product at home and abroad, the best cost level in the history of the company, or the fixed or standard cost based on the average advanced level.

According to the historical cost of the company, combined with future cost reduction measures and cost reduction tasks issued by superiors, comprehensive calculation and determination are made.

First set the target profit and subtract the target profit from the product sales income, which is the target cost to be achieved.