Reasons for using target costing technique:The target costing approach was developed in recognition of two important characteristics of markets and costs. The first. Is that many companies have less control over price than they would like to think. The market (i.e, supply and demand). Really determines prices and a, company that attempts to ignore this does so at its peril. Therefore the anticipated, market. Price is taken as a given in target costing. The second observation is that most of the cost of a product is determined. In the design stage. Once a product has been designed and has gone into production not much, can be done to significantly. Reduce its cost. Most of the opportunities to reduce cost come from designing the product so that it is simple, to make. Uses, inexpensive parts and is robust and reliable. If the company has little control over market price and little control. Over cost once the product has gone, into production then it follows that the major opportunities for affecting profit come. In the design stage where valuable features that customers are willing to pay for can be added and where most of the costs. Are really determined.
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