Asked by Gracia Malohing on Jul 06, 2024
Verified
Which equation better describes target costing?
A) Selling Price - Desired Profit = Target Costs
B) Selling Price + Profit = Target Costs
C) Target Variable Costs + Contribution Margin = Selling Price
D) Selling Price = Profit - Target Variable Costs
Target Costing
The target cost is determined by subtracting a desired profit from a market-determined price. The resulting target cost is used to motivate cost improvements in design and manufacture.
Selling Price
The amount of money for which a product or service is sold.
Target Costs
The desired cost of a product for which a company aims in order to achieve a desired profit margin after considering the selling price and required profit.
- Employ pricing strategies grounded in cost analysis, including markup and target costing approaches.
Verified Answer
MP
Madelyn PorterJul 09, 2024
Final Answer :
A
Explanation :
Target costing is a method of determining the maximum cost at which a product can be produced given the desired profit margin. Therefore, the equation that best describes target costing is Selling Price - Desired Profit = Target Costs. This equation helps companies determine the target cost for a product, based on the desired profit margin and the market selling price.
Learning Objectives
- Employ pricing strategies grounded in cost analysis, including markup and target costing approaches.