What does the target cost?
Target costs is a type of cost management tool, which aims to minimize the costs of products produced in the life cycle of these products. The aim is to use this approach as a means of creating an ideal balance between consumers' requirements for durability and the use of produced products and objectives of the manufacturer in terms of generating profits from these products. With the company's target expense, strategies use the company to maintain operating costs below a certain amount, which in turn allows you to maintain an acceptable profit margin by selling products for the unit price that consumers feel, reasonable and competitive with products offered by other companies.
The target costs are somewhat different from other methods, such as what is called General or traditional costs, with the target costs and profitable margins. Traditional methodIn principle, it starts with the evaluation of production costs, including advertising, distribution and administrative costs, then this data will achieve the unit price, which is presented to consumers for their consumption on the market. On the other hand, the target costs are beginning to determine what type of price consumers are likely to require to buy products, and then works back to bring operating and production costs in accordance with this number. This often means the operation of production equipment with high efficiency levels as well as to carry out cautious and cost -effective decisions with advertising and other tools used to address consumers.
When the goal is successful, the company is able to maintain a profit range for a longer period of time. Although there may be minor fluctuations in some factors, such as seasonal rise and falls in consumers' shopping habits or increasing the cost of laboratory or raw materials, businesses usually move fast to compensate and protect GEnergy profit. Depending on what is happening on the market, it may be necessary to adjust the unit prices for products in some way. For example, if the market for similar products is experiencing a trend in which unit prices increase, access to the target can also allow manufacturers to slightly adjust prices up and be careful not to remain in a convenient profit and will continue to be competitive with other companies trying to attract consumer attention.
One of the advantages of target costs is that it can often eliminate the time it takes to return and modify the operating costs later. Since this approach has begun to identify the price that consumers are likely to pay, the design of the production process often eliminates waste and is designed to function at the highest level of effect. Theoretically, this means that the target costs save time and money by minimizing the chances of reworking the process so often to remain efficient and competitive on the market.