Target Costing
Claireshep2793
New MemberRegistered Posts: 9
Hi
Can anyone explain how target costing actually works? I can work out the cost per units for labour material and fixed costs, but how on earth do you actually get the target cost per kilo?
I have the Kaplan, BPP and Osborne books and I can't find a simple explanation in any of them
Thanks
Claire
Can anyone explain how target costing actually works? I can work out the cost per units for labour material and fixed costs, but how on earth do you actually get the target cost per kilo?
I have the Kaplan, BPP and Osborne books and I can't find a simple explanation in any of them
Thanks
Claire
0
Comments

Look at the target cost of the amount of material needed per unit
Then divide the cost by the material to find the target cost per kg
If a recipe requires 200g of material and the target (max) cost that this 200g can cost is £4.00
Then (as 200g is 0.2 kg) take the £4.00 and divide by 0.2kg to find the target cost of £20.00 per kg
Have looked at chapter 12 of:
Management and Cost Accounting for Dummies http://eu.wiley.com/WileyCDA/WileyTitle/productCd1118650492.html
It even considers the maximum hours that should be used to make a product to keep the total cost within the target.0