Target Costing

Claireshep2793

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

SandyHood

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.