Target Costing

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

Comments

  • SandyHood
    SandyHood Font Of All Knowledge Registered, Moderator Posts: 2,034
    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/productCd-1118650492.html
    It even considers the maximum hours that should be used to make a product to keep the total cost within the target.
    Sandy
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    www.sandyhood.com
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