2.2 Deriving a target cost
Steps
1 Estimate a selling price for a new product that will enable a firm to capture a required share of the market.
2 Reduce this figure by the firm’s required level of profit. This could take into account the return required on any new investment and on working capital requirements or could involve a target margin on sales.
3 Produce a target cost figure for product designers to meet.
4 Reduce costs to provide a product that meets that target cost.
