Target costing

• is calculated as estimated selling price minus ac¬ ceptable profit margin.

• is a tool to manage production costs

^ in the development stage of the product life cycle.

^ by developing an estimate of an “allowable” production cost (target cost) based on the estimated sales price of the product.

• forces managers to align the expected produc¬ tion cost with the target cost.

• is continually reduced over a product’s life cycle so as to spur continuous improvement.LO.1