Target Costing is a pricing strategy used by companies to determine the desired cost of a product based on its market price and required profit margin. The process begins with identifying the target selling price and subtracting the desired profit to establish the maximum allowable cost for production. This approach helps businesses remain competitive while ensuring profitability. To achieve the target cost, companies analyze their production processes and identify areas for cost reduction. This may involve redesigning products, improving efficiency, or sourcing materials at lower prices. By focusing on cost management from the outset, firms can better align their products with market expectations.