Which of the following statements is true of target pricing?
A)It starts with the price that customers are willing to pay.
B)It uses the full product cost that a company estimates to arrive at the sales price.
C)It does not consider the nonmanufacturing costs while calculating the target cost.
D)It is the same as cost-based pricing.

Question

Quizplus · Accepted Answer

Target pricing begins with the price that customers are willing to pay and works backward to the target cost. It considers the customer's perceived value while determining the price of a product. It helps in achieving the desired profit margins while still remaining competitive in the market. Therefore, option (A) is the correct choice.

Option (B) is incorrect because target pricing does not use full product cost to arrive at the sales price; instead, it uses the target cost that a company aims to achieve.

Option (C) is incorrect because non-manufacturing costs, such as marketing and administrative expenses, are also considered while determining the target cost.

Option (D) is incorrect because cost-based pricing begins with the cost incurred by a company, while target pricing considers the customers' preferences and needs.

Which of the Following Statements Is True of Target Pricing