Target Costing

What’s it all about?

A technique for attempting to make sure that the costs of your product give you the profit you require at the price you intend to sell for.

When we look at Target Costing we are identifying the selling price and the profit margin that we require. This gives us a maximum cost that we can afford for production. If the actual cost will exceed this we then look at the design/manufacture/overheads etc. to see what we can change to bring the cost down to the target.

 

Usually when a company reduces the quantity of product it sells for the same price it gets away with it. for Toblerone, the new design and reduction in chocolate was a bit too obvious.

Here they have reduced the chocolate content, by 10%. Did the price come down 10% too? Thought not.

http://www.independent.co.uk/news/uk/home-news/toblerone-new-shape-outrage-chocolate-scandal-a7404011.html

photo from The Sun newspaper

 

Coverage on the BBC with a video of customer responses:

http://www.bbc.co.uk/news/uk-37904703

Coverage of the changes to a number of chocolates in the last year. Interesting to see the companies’ responses to customer concerns. Some blame rising costs (essentially demonstrating target Costing), others use marketing speak – one claims they did it to help combat obesity! Stop making bloody chocolate at all then. 🙂

http://bbc.in/2gGbKIj

Watch This

Comprehensive discussion of Target Costing.