Target costing represents one of the most important areas where marketing
and accounting overlap. Briefly, with target costing, marketing and design
functions identify a product’s desired features and its likely selling price.
Under the target cost system, activities are controlled by using a target, or a
market-based allowable cost, that has to be realized if the firm is to be
profitable. A desired profit margin is subtracted from the estimated selling
price to determine the target cost for the new product. All members of the
organization subsequently work to design and manufacture the product at the
target cost.