}Target Costing is a proactive cost control system. 

}The target cost is calculated by deducting the target profit from a pre-determined selling price based on customers’ views.

}Target costs = Estimated price – Desired target profit

}The target cost may be less than the planned initial cost butit is expected to be achieved by the time a product reaches its maturity stage of the product life cycle

}In essence, conventional costing and pricing methods can be described as bottom up in their approach, they start with internal costs and build up to a selling price.

}Target costing is a top down approach, it starts with a target price and derives a cost from that price.