How is target costing used to price products?

traditionally cost plus procedure were used means at the time of pricing the product we accumulated the cost(direct material+direct labor+direct expenses+variable production OH+fixed production OH)that has to be incurred in order to produce the product and determined the cost per unit and then add the profit margin to reached at the selling price this method of costing is precised for its simplicity but in 1960 the concept of target costing were introduced which tells us the opposite approach as compared to the traditional costing in target costing we starts from the market survey and determine at what selling price costumer is agree to buy the product which we want to produce after determining the selling price of the product we subtract the desired profit which we want to achieve from it(competitive selling price-desired profit=target cost)

after subtracting the desired profit from the selling price we left with the cost termed as the TARGET COST.

after setting of the target cost we look all the budgeted cost if budgeted cost is greater than the target cost we apply all the cost saving techniques to control the budgeted cost and keep the budgeted cost into the limits of target cost...

(ANSWERED BY ARSALAN IDREES)