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Definition

Target costing

Target costing— pricing that starts with an ideal selling price based on customer considerations and then target costs that will ensure that the price met. Target costing reserves the usual process of first designing a new product, determining its cost, and then asking, “can sell it for that?” For example, when Honda set out to design the Fit, it began with a $13,950 starting price point and an operating efficiency of 33 miles per gallon firmly in mind. It then designed a stylish, peppy little car with costs that allowed it to give target customers those values.

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