Target costing is product development that adopts a cost target as a primary goal or constraint. The following are illustrative examples.
Cost CompetitionA highly competitive industry such as solar energy where ability to cut costs to make products cheaper is key to survival as a firm. Costs considered include the entire lifecycle of solar panels including manufacturing, delivery, installation, operation and recycling.
Creating a striped-down version of a successful product to introduce it to a developing market at a lower price point.
SustainabilityDeveloping tools to improve quality of life and/or the environment that has to be scaled at a low cost.
BudgetA building project has a fixed $12 million budget. The client also has over 120 requirements that are expected to be met for that price. Construction firms bid for the contract with each explaining how it can fulfill the requirements for the price.
Price PointsA fashion company finds that shoes sell well at a certain price point. The firm also expects 50% margins. These two factors place firm cost constraints on fashion designers at the firm.
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