Outlining target costing


After completing this lesson, you will be able to Describe calculating target costs for cost centers.

Target costing

You want to evaluate the performance of your cost centers. You notice that the comparison of the planned costs with the actual costs shows whether planned costs have been exceeded. But the question arises: are the actual costs incurred justified? Do the actual costs represent the effort required to complete the tasks that the employees performed and fulfill the cost centers business purpose?

  • Activity types can be assigned to cost centers for which resources can be identified and are used. Valid activity types can be, for example, employee time, machine time, energy consumption, or building space used. Consumption of these resources incur costs.
  • There are two categories of costs:
    • Fixed costs if increasing activity does not lead to increased resource consumption. This is the case, for example, with a meeting room regularly used or different types of insurance.
    • Variable costs if more resources are used as output increases. This is usually the case for energy or maintenance, for example.

Account assignment logic

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