Target costing involves setting a target cost by subtracting a desired profit margin from a target selling price.
Target cost is the cost at which a product must be produced and sold in order to achieve the required amount of profit at the target selling price. When a product is first planned, its estimated cost will often be higher than its target cost. The aim of target costing is then to find ways of closing this target cost gap, and producing and selling the product at the target cost.
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