Target Costing and

Lifecycle Costing
Mrs. Damayanthi Gunawardana
BSc in Business Administration,
Learning about the concepts of Target
Costing
Learning about the concepts of Lifecycle
Costing


The Management process responsible for
identifying, anticipating and satisfying
customer requirements profitably.

The Charted Institute of Marketing
Role of the Marketing departments,

Are customers homogeneous or can we identify different
segments within the market?
What features does each market segment want in the
product?
What price are customers willing to pay?
To what competitor products or services are customers
comparing ours?
How will we advertise and distribute our products?
What do
Competitors Offer?
New
product

If a company normally expects a mark-up
on cost of 50% and estimates that a new
product will sell successfully at price of $12,
then the maximum cost of production
should be $8.
Cost + Mark-up = Selling price
100% + 50% = 150%
$8 $4 $12
Here are some of the decisions, made
at the design stage, which can effect
the cost of the product
Thefeaturesoftheproduct
Howtoavoidoverdesign
Thenumberofcomponentsneeded.
Whetherthecomponentsarestandardorspecialized.
Wheretheproductcanbemade
Whattomakein-housecanbemade
Thequalityoftheproduct
Thecomplexityofmachiningandconstruction
Thebatchsizeinwhichtheproductcanbemade

Reducing costs
Cost drivers (cost causers)
Ex: costs could be driven by increasing batch size,
or reducing the number of components that have
to be handled by stores.
Value engineering (value analysis)
Where value is made up of both
- Use value
- Esteem value
Ex: If you are selling perfume, the design of its
packaging is important.

1) ABC company normally expects a
mark-up on cost of 60% and estimates
that a new product will sell
successfully at price of $16. How much
the maximum cost of production
should be ?

Quiz

An important economic analysis used in
the selection of alternatives that impact
both pending and future costs.
It compares initial investment options and
identifies the least cost alternatives for a
twenty year period
Cost phases of product
Four principal lessons from LCC
All costs should be taken into account when
working out the cost of a unit and its
profitably.
Attention to all costs will help to reduce the
cost per unit and will help an organization
achieve its target cost.
Many cost will be linked
Costs are committed and incurred at very
different times.