Which of the following formulas best reflects target costing?
A)Target cost = Firm-determined price - Desired profit.
B)Target cost = Market-determined price - Desired profit.
C)Target cost = Firm-determined price - Desired revenue.
D)Target cost = Market-determined price - Desired revenue.
E)Target cost = Firm-determined price - Market-determined price.

Question

Quizplus · Accepted Answer

Target costing involves setting a product's cost based on the market price and desired profit margin. Option B reflects this by subtracting the desired profit from the market-determined price to calculate the target cost. Option A subtracts the desired profit from the firm-determined price, which does not consider market demand or competition. Option C subtracts desired revenue, which is not an accurate reflection of target costing. Option D subtracts desired revenue from the market-determined price, which is not the correct formula for target costing. Option E subtracts the market price from the firm-determined price, which is not relevant to target costing.

Which of the Following Formulas Best Reflects Target Costing