BCAS-10
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BANGLADESH MANAGEMENT ACCOUNTING STANDARDS (BMAS)
BMAS – 3400
TARGET COSTING
Introduction
CONTENTS PARAGRAPHS
Scope 1–2
Objective 3–5
Principles 6
Overview 7–10
Definitions 11
Recognition and Measurement 12-15
Target Costing Formula 16-17
The Tools of Target Costing 18
Phases of Target Costing Setup 19
Determination of Target Costing 20
Cost Management Techniques 21
The Role of the Management Accountant in Target Costing 22
Management Issues in Target Costing 23
BANGLADESH COST ACCOUNTING STANDARDS
The Institute of Cost and Management Accountants of Bangladesh
ICMA Bangladesh, ICMA Bhaban, Nilkhet, Dhaka–1205 Bangladesh
BCAS 10
Target Costing
BCAS-10
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BCAS 10: Target Costing
Summary
Effective Date : ICMAB prepares this standard for ultimate use and adoption by every company operating in
Bangladesh at its own discretion starting from the period beginning on July 1, 2014.
Objective : The main purpose of this standard is to guide companies to using target costing for the purpose
of product costing. It is customary that cost–plus pricing is a widely used method of costing
products. However, due to radical change in the nature and degree of competition in the market,
cost–plus pricing starts to lose its relevance. Thus, cost engineering becomes an established norm
in market place where an estimated amount of cost is targeted to remain sustainable in the
market. This standard provides specific guidelines of using target costing based on target selling
price and target profits both of which are known.
Key Features :
Defining target cost, target selling price and target profit
Presenting the methodology of applying target costing to price products
Developing a multi–tasking team to develop, design and deliver satisfying products
Demonstrating the benefit of target costing over cost–plus pricing
Bringing the issue of cost engineering to keep the costs within the target
BCAS-10
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Contents
Particulars Paragraphs
Introduction
Scope 1-3
Objective 4-6
Definitions 7
Standards 8-36
Recording and Reporting 37–42
Appendix
BCAS-10
BCAS 10: Target Costing
The standards, which have been set in bold italic type, should be read in the context of the background material and
implementation guidelines of this standard. BCAS is not intended to apply to immaterial items.
Introduction
The aim of target costing is to keep the cost within control for ensuring a competitive edge in the market. Cost–plus
pricing, a widely used pricing methodology, reined the product costing literature for long; however, lose its
rationality in a highly competitive market. If the selling price is set by the market with a selective design and
functionality requirement, adherence to that price is the most critical requirement. The product design and
development team should work hard to deliver the product at that target price leaving enough profit for the
sustainability of the firm in the long run. Thus, the target cost must be achieved after every possible design
variations. A target costing methodology brings all of these functions into focus and surely, offers a good number of
advantages over cost–plus pricing.
Scope
1. The standard shall be applied for determining the target cost of a product considering the target price of that
product which a potential customer is willing to pay.
2. The target costing approach is developed in recognition of two important characteristics of markets and costs.
a) The first is that many companies have less control over price then they would like to think that the market
(supply and demand) really determines prices. Therefore, the anticipated market price is taken as a given in
target costing.
