Cost targeting is the pricing method which has to be used by the firms. It is defined as the cost management tool used for reducing the overall cost of the product over its entire life-cycle with the help of the production, engineering, research and design. A target cost is the maximum amount of the cost which can be incurred on the product and with which the firm can still earn the necessary profit margin from the product at a particular selling price.
In the traditional cost-plus pricing method the materials, the labour and the overhead costs will have to be measured and also the desired profit should be added to estimate the selling price. The costs can be divided into five categories and are as follows:
The project cost control is more difficult to do in practice which is proved by the number of projects which have failed to contain the costs. It will also involve an important amount of work from the beginning.