How to calculate target costing

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Target costing is a technique of managing company profit whereby the company design the product at an established cost in order to get desired profit from the market selling price

Target costing is calculated by establishing or researching the Market Price of the planned product and planning the profit which the company expect to obtain from the price before subtracting the price to establish the target cost

The company then make sure that the planned product is designed and produced at the target cost in order to make the desired profit


Target cost = (market Price – desired profit)