Target Costing Stages

The Target costing stages are defined as:

1. First step is to establish a competitive market price. The company would consider how much customers are willing to pay and how much competitors are charging for similar products.

2. Determine the required profit figure

3. A target cost is arrived at by deducting the required profit from the selling price

4. Steps must then be taken to close the target 'cost gap' from the current cost per unit if its higher.


The target cost gap is established in step 4 of the target costing process.
Target cost gap = Estimated product cost – Target cost

Hope this helps - if you have an example happy to look at