From the course: Purchasing Foundations
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Target costing
- What if you want to bring a new product to market? How much should you charge for this item? Most people add up the total cost to make and deliver the product, add a certain percentage to the cost to give them a profit, and that's the selling price. Pretty simple. But what if your customers won't pay that much for your new product? Maybe you have some competition that prices their very similar product at a lower price. You now have to figure out, at that new price level, how to bring your product to market at a lower price, and still make a profit. Well, there's a method to help you do exactly that. And it's called target costing. Target costing helps you figure out just how much you can pay your suppliers for the materials and components needed for your new product. By the way, many people in business use the expression target pricing interchangeably with target costing, it's the same thing. So, how does target costing work? Let's say your marketing people tell you the right price…
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