Target Costing
Target costing is a cost management methodology used primarily in product development and manufacturing to ensure that products are designed and produced at a cost that allows them to be sold at a target price while achieving a desired profit margin. It involves setting a target cost based on market conditions and customer expectations, then designing the product to meet that cost through value engineering and cost reduction techniques. This approach shifts cost control from production phases to the design stage, emphasizing proactive cost management.
Developers should learn target costing when working in industries like manufacturing, automotive, electronics, or consumer goods, where product cost competitiveness is critical for market success. It is used to align engineering and design decisions with business goals, ensuring products are both technically feasible and economically viable. This methodology helps teams prioritize features, select materials, and optimize processes to meet cost targets without compromising quality, making it valuable for roles involving product management, cost engineering, or cross-functional collaboration.