Target costing is a critical factor in product design and development. It not only gives idea about the final product but also helps in assuring the success of the product in the market. How to calculate target cost for Electronic Products? Before going into the specifics the brief life cycle of electronics design and development of a new innovative product can be outlined as below.
Generic Life Cycle of Electronic Products
- Idea of a product
- Market Analysis – Marketing Requirement document
- Target Costing : How to calculate target cost for Electronic Products ?
- Requirement design – Product requirement Design document
- Quotes for design and development – Technical Proposal
- Prototype build – Design, verification and manufacturing of prototype
- Requirement verification and validation
- Mass Production
Historical Origin of Target costing
Target costing is believed to be originated in Japan in the 1960s and since the 1980s Western companies in North America and Europe have tried to adopt target costing albeit over the years many variations of target costing have been developed and are being used in different countries. ““Value engineering” is another similar known concept from Americans which emphasizes on maximizing desirable product attributes while at the same time minimizing product costs (Leahy, 1998).
How to calculate target cost for Electronic Products ?
The principle of target cost starts with finalizing of selling price of a particular product and work back to the cost by removing the cost of profit. The design and manufacturing teams are vital for this as the emphasis is given from the design and planning stage, so that the apt decision are made to determine the price and feature combinations suitable for the product and profitable for the customers.
Factors which affect costing
- The Mandatory features of the product
- Good-to-have features
- Bill of material, PCB costing : No of components
- Environment Requirement : Russia or South Africa, inside water or top of mountain
- The complexity of design and ease of manufacturing
- Enclosure design and material
- In-house expertise and sub-contracts
- Batch size and packaging, shipping costs
The concept of value analysis is of prime importance here as it aims to reduce costs by identifying those area of a product or service which even if removed does not affect “user value/ function” or “esteem value/brand value” of the product.
Cost of a unit can be worked out by taking cost of all above and desired profitability. Conventional costing records costs only as they are incurred but target cost gives flexibility and ability for cost control and increase the margins as per demand of the market.
Argus product development process involves focus on value engineering and target-costing for electronic products to make it viable for customers and consumers equally.
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