The method of determining the cost of a product or service based on the price that customers are willing to pay is called
A) relevant costing.
B) differential costing.
C) target costing.
D) product costing.
E) overall costing.

Question

Quizplus · Accepted Answer

The method described in the question is called target costing. Target costing involves determining the maximum cost that can be incurred to produce a product or service based on the price that customers are willing to pay. This information is then used to set a target cost, and efforts are made to design and produce the product or service within this cost while still maintaining the desired level of quality and functionality. Relevant costing involves considering only the costs and revenues that are relevant to the decision being made, while differential costing involves analyzing the difference in costs and revenues between two or more alternatives. Product costing involves determining the cost of producing a product, and overall costing is not a commonly used term in management accounting.

The Method of Determining the Cost of a Product or Service