# Target costs

Target costs are a key figure from controlling and cost and performance accounting. They are part of the operational budgeting and enable a comparison between the planned and actually achieved performance and economy.

## Definition / explanation

Target costs are the costs that arise in production with the actually realized production quantity (also referred to as actual employment) offset with the assumed planned cost allocation rate. They expressly do not have to correspond to the real costs, but represent a calculated quantity.

## How are target costs calculated?

The formula for calculating the target costs is as follows:

Target costs = actual employment x planned cost allocation rate

Actual employment - The actual employment corresponds to the production output. Usually this is a number of pieces.

Plan cost allocation rate – Der Plankostenverrechnungssatz entspricht den Kosten pro Produktionseinheit bzw. pro Stück. Hier sind Fixkosten (z.B. Miete oder Personalgehälter) sowie variable costs (z.B. Material, Piece wages etc.) are factored in.

## What do the target costs say?

Determining the target costs results in a key figure that shows various deviations in the cost and production plan in comparison with other variables.

For example, if you compare the target costs with the product of the planned cost allocation rate and the planned employment (the so-called planned costs), you can see whether the target production quantity has been achieved.

If the following applies: "Target costs <Plan costs " real employment is below the planned one.

The difference in Actual costs (Ist-Beschäftigung x Ist-Kosten pro Stück) und Sollkosten ergibt die sogenannte Verbrauchsabweichung. Sind die Actual costs höher als die Sollkosten, sind auch die Unit cost turned out higher than planned - this can reveal inefficient production (e.g. due to waste of material).

## Summary

• Target costs are calculated from the actual employment valued with the planned cost rates (actually realized production quantity)
• Calculation: target costs = actual employment x planned cost allocation rate
• Target costs reveal deviations in the cost and production plan
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