Target costs are calculated to determine what the cost of production should have been for the quantity actually produced. This is achieved by taking the planned costs from a standard cost estimate and scaling them to the actual quantity of finished goods delivered from the production order. The actual quantity produced (yield) is confirmed and recorded in the system during the goods receipt posting. This dynamic adjustment allows for a meaningful comparison between target costs and actual costs, which is the basis for variance analysis.

B: Goods issue pertains to the consumption of input materials. Target costs are calculated based on the output quantity (finished goods), not input quantities.

C: Adjusting planned costs by the planned lot size is redundant, as it simply results in the original total planned cost. The calculation must use the actual output.

D: Adjusting planned costs by the planned lot size is incorrect. The core principle of target costing is to create a benchmark based on the actual quantity produced.

1. SAP Help Portal

SAP S/4HANA Cloud

"Target Cost Calculation": "The target costs are calculated for the control quantity. In Product Cost by Order

the control quantity is the yield confirmed for the order at the time of variance calculation." The yield is the quantity posted during goods receipt. (Document section: Controlling > Product Cost Controlling > Cost Object Controlling > Product Cost by Order > Period-End Closing > Variance Calculation > Target Cost Calculation).

2. SAP S/4HANA Management Accounting II (S4F22) Course Material: In the unit covering Period-End Closing for Product Cost by Order

the process of variance calculation is detailed. It specifies that target costs are determined by valuating the quantity delivered to inventory (the goods receipt quantity) with the standard cost estimate. (Reference: S4F22

Unit on Period-End Closing

Lesson on Variance Calculation).