What is the target cost pricing method?

All costs (Fixed + variable) are relevant because target costing operates on long run decisions. 1. Develop product that satisfies needs of potential customers. 2. Choose target price: estimated price that potential customers are willing to pay. 3. Choose target operating profit per unit. 4. Derive target cost per unit: estimated long-run cost per unit, which allows to earn the target operating profit. 5. Perform value engineering to achieve target costs.