COMPONENTS OF THE TARGET COSTING PROCESS
At the most basic level, the desired target cost is the cost of resources that should be consumed to create a product that can be sold at a target price. The target costing process begins with identifying the target price. The target price is determined through interaction with consumers. However, management must determine an acceptable profit margin for the product to compute the desired target cost. That profit margin, although not considered in detail here, is a function of the type of business and the demands of the marketplace. The basic target cost formula is as follows