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Target Costing - Article Example
The aim of each and every business is to make profit once commenced. One factor that affects the profit margin of an enterprise is the concept of costs and many firms are fully aware of the concept…
One of the ways is that there is proactive focus on cost. The strategy once applied effectively, some of the unnecessary costs are thereby eliminated. The strategy determines in advance the costs to be incurred in a production process. Once they are determined, some of the costs that may have been incurred in a firm hence interpreted as loss are dropped. The firm will not incur the costs and will save the funds for other profitable ventures. Many firms obviously view the concept of cost as a very complex one as it is what reduces the profit. However, they strategize by first formulating the design hence work out the cost later. Target costing works from the selling price backwards to the cost hence the firm’s profit margin is unaffected therefore; the targeted profit of the firm will still be obtained. The profitability of the venture will continue being derived. The second way in which profitability is ensured is that with target costing there is the aspect of the production processes improvement. The tool operates with inclusion of teamwork. A team dedicates its own effort towards achievement of the outlined goals and objectives.
Some of the ways are through Proactive focus on cost, team spirit, competition and improvement in production process. Such a firm will be able to make more profit with cost reduced. ...