Target cost

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The development and production costs that a product must not exceed in order to keep the customer satisfied with the value of the product while the producer realizes an acceptable return on investment. 

Toyota developed target costing for a small group of suppliers with which it had long collaborated. Because there is no market price available when tendering by tender or auction, Toyota and its suppliers set the correct/fair cost (and price) for a delivered item by estimating how much the customer thinks the item is worth. 

It then works backwards from there to eliminate costs (waste) to achieve that price, while maintaining profit margins for Toyota and the supplier.

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