Description: Target costing is a pricing strategy that focuses on determining the selling price of a product before calculating its costs. In this approach, a selling price is established based on the perceived value to the customer, and from there, the desired profit margin is subtracted to determine the target cost that the product must meet. This methodology allows companies to be more competitive in the market, as it focuses on offering products at prices that consumers are willing to pay while ensuring that production costs remain within established limits. Target costing is particularly relevant in highly competitive environments and in industries where innovation and differentiation are key. Additionally, it fosters collaboration among different departments, such as marketing, production, and finance, to ensure that everyone works towards the same profitability goal. In the context of financial operations and cost management, target costing can help organizations manage their spending on resources and services, ensuring that costs align with expected revenues and maximizing the return on investment in technology.
