Mojave Corporation manufactures a single product that has a cost of $350. The company uses a 70% markup on cost to arrive at a selling price of $595, which results in a price that virtually always exceeds that of the market leaders. If Mojave changes to the approach known as target costing, the company will first:
A) reduce its 70% markup rate.
B) trim its $350 cost.
C) attempt to re-engineer its product.
D) undertake a thorough study of competitors' prices.
E) change the markup so that it is based on sales rather than based on cost.

Question

Quizplus · Accepted Answer

Target costing involves setting a target price based on market conditions and competitors' prices, then working backward to ensure costs allow for profitability at that price.

Mojave Corporation Manufactures a Single Product That Has a Cost