1. What is Target Costing and Value Engineering?
Target Costing is a strategic cost management technique used during the product design stage.
It ensures that a product is designed within a cost limit that allows the desired profit margin.
The formula is simple:
Target Cost = Market Price – Desired Profit
If the estimated product cost exceeds the target cost, changes are made during the design phase — not after production begins.
Value Engineering complements target costing.
It systematically improves product design by:
- Eliminating unnecessary features
- Reducing material costs
- Improving process efficiency
- Maintaining or enhancing customer value
In simple terms:
Design the product in a way that it is profitable before it is even manufactured.
2. How Target Costing and Value Engineering Help Your Organisation
This approach improves:
- Product profitability
- Competitive pricing ability
- Cost control before production
- Design efficiency
- Cross-functional collaboration
- Long-term strategic planning
It prevents:
- Launching unprofitable products
- Cost overruns after production
- Margin erosion due to poor design decisions
By integrating cost planning into product development, it strengthens sustainable profitability and competitive advantage.
3. Who Should Opt for Target Costing and Value Engineering?
This service is ideal for:
- Manufacturing companies launching new products
- Businesses operating in highly competitive markets
- Companies facing pricing pressure
- Product design-driven industries
- FMCG, automobile, electronics and engineering sectors
- Startups planning scalable product models
If your business designs and launches products, this service is highly recommended.
4. Frequently Asked Questions (FAQs)
What is the main objective of Target Costing?
To ensure that a product is designed within a cost that allows the desired profit margin at market price.
How is Value Engineering different?
Value Engineering focuses on redesigning products to reduce cost while maintaining functionality and quality.
Is this applicable after production starts?
Target Costing is most effective during the design stage.
However, Value Engineering can also be applied to existing products.
Does this affect product quality?
No. The focus is on eliminating unnecessary cost, not reducing essential quality.
What measurable outcomes can be expected?
Improved gross margins, competitive pricing, controlled product cost and higher return on investment.