Target Cost Analysis Definition
Target cost analysis is a process used to estimate the optimum price for a product or service. The target cost is the desired cost at which the company would like to sell the product or service. The target cost analysis takes into account all of the company’s costs, including materials, labor, overhead, and profits. The goal of target cost analysis is to find the lowest possible price that will still allow the company to make a profit.
To conduct a target cost analysis, the company first needs to determine its break-even point. The break-even point is the price at which the company’s revenue equals its costs. Once the break-even point is determined, the company can begin to lower its prices until it reaches its target cost.
Target cost analysis is an important tool for companies that are trying to compete in a global market. By finding the lowest possible price for their products or services, companies can stay competitive and still make a profit.
