Step 3: companies need to manage cost for to be left with respectable margin of profit. Companies need to establish a level of production at which fixed and variable cost can be maintained. Generally, it is observed that production level increase cost per unit decreases owing to the learning curve effect which comes through experience. Activity based costing is getting in prominence as to allocate the cost properly which helps in estimation profit correctly. Another way of cost setting is through the target costing, made famous by Japanese companies. In target costing companies set price and profit level. After which they concentrate on cost as to maintain the profit level.