Target Costing

Target Costing is a market-driven strategy and process that begins with what price a product can sell for in the marketplace to achieve a desired sales volumes. Target cost is then calculated by subtracting the desired profit margin from this target price. The target cost is treated as an independent variable that must be satisfied along with other customer requirements rather than the result of design decisions (dependent variable). This cost would be considered the unit production cost that is expected to be achieved during a mature production stage. Design-to-cost is the process to achieve the specified target cost. Design-to-cost uses product cost models and estimating systems to evaluate design options and relies on tools such as design for manufacturability / assembly, value analysis and process re-engineering to achieve reduced product costs. Target costing and design-to-cost are further described in a paper, "Achieving Target Cost / Design-to-Cost Objectives".

PD-Trak™ provides the following target cost tools:

Target Cost Calculation Worksheet

The Target Cost Calculation Worksheet uses the target price as a starting point and makes adjustments for many cost elements to calculate the target cost. This worksheet is illustrated below.

Target Cost Evaluation Worksheet

During concept development and selection, the Target Cost Evaluation Worksheet is used to accumulate and compare costs for various concept alternatives to aid in selection of the preferred concept. The Target Cost Evaluation Worksheet is illustrated below.

Target Cost Tracking Worksheet

During the design process, the Target Cost Tracking Worksheet is used to periodically (monthly or quarterly) capture cost estimates and track achievement of the target cost. This worksheet generates target cost achievement trend charts for the project team’s and management’s use. Target cost is one of the fundamental project metrics to monitor. The resulting trend chart is shown below.

For further information, please contact us at: info@pd-trak.com or at 925-484-8436.

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