If the target cost is defined as "Sales price minus profit," what do organizations aim to achieve?

When organizations define target cost as "Sales price minus profit," they are primarily aiming to determine the allowable cost for production. This approach focuses on setting a clear price point and then calculating how much can be spent on production while still meeting the desired profit margin.

By establishing this relationship, businesses can identify the maximum amount they can afford to pay for producing a product or service without jeopardizing their financial objectives. This helps in strategic planning, ensuring that all costs associated with production, materials, labor, and overhead conform to the overall economic goals of the company.

This practice is especially significant in competitive markets where price sensitivity is high, and organizations must innovate and find efficiencies in their processes to maintain profitability. By knowing the target cost, firms can optimize their operations and supply chain management, which ultimately supports their overall business strategy.