Target costing starts with the price that customers are willing to pay and then subtracts the company's desired profit to determine the desired full-product cost.

Question

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This is the basic concept of target costing, where the price is determined based on customer willingness to pay and then the company works backwards to determine the maximum allowable cost of the product in order to achieve the desired profit margin.

Target Costing Starts with the Price That Customers Are Willing