what is a standard cost? and what is a target cost?
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Answer Posted / chintan
Standard costing is used mainly in mass production as a
tool for control. Costs for standard parts are established
by work study or experience, actual costs then being
checked against the standard costs.
Target costing is a reversed cost accounting technique.
Instead of calculating costs first and then setting the
price based on these calculated costs, target costing does
it the other way around. Target costing is convenient for
firms operating in perfect competition. The steps in target
costing are as follows: 1. Determine the price consumer is
willing to pay for the product, say Rs. 15. This may be
arrived at after conducting a market research; 2. Determine
the profit margin the business is willing to accept, say 8%
of Z; 3. On subtracting the above two, i.e., 15 Rs - 1.11
Rs = 13.88, Target cost is determined.
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