Target costing

Target costing is a pricing strategy where a company starts by determining the maximum price customers are willing to pay for a product. From this target selling price, the company subtracts desired profit margins and adjustments for costs to find the allowable production cost. The goal is to design and produce the product within this cost limit, ensuring it can be sold profitably at the target price. This approach helps companies focus on cost management and efficiency early in the development process, aligning product design with market expectations and profitability goals.