The Target Costing

The Target Costing

It has been mentioned several times in our website: the early stages of the Product Development process, called, in the Lean Product Development approach ‘Front load’, are the most decisive of the entire process.

In fact it is in these early stages, that the managers make the key decisions that could increase the success rate of the product in the market.

One of the key variables that the team must keep under control, is the Cost of the Product.

Are there simple approaches to keep the cost of the product under control?

A simple method consists in developing a ‘cost model of the product’ with the aim to give the first indications to the team about the target cost of manufacturing.

The main inputs of this method are:

– the hypothetical sales price

– the desired profit for the company

– the profit request by distributors

Can the Target Cost methodology be applied in all product development projects?

Yes, of course, but it is more or less difficult, depending on the type of project you are working on.

For product improvement projects will be easier, because historical data are available.

It is more difficult to apply for the development of new products for which no information is available.

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