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 when calculating the target cost.
D)It is the same as cost-based pricing.

Question

Quizplus · Accepted Answer

Target pricing starts with the price that customers are willing to pay and then works backward to determine the target cost that the company must achieve to make a desired profit margin. It differs from cost-based pricing, which starts with the full product cost and adds a markup to arrive at the sales price. Nonmanufacturing costs are also taken into consideration when calculating the target cost in target pricing.

Which of the Following Statements Is True of Target Pricing