Chastain Company recently implemented an activity-based-costing system.As a result of the ABC allocations,the cost of one of the company's products was determined to be above its current selling price.Due to competition,the company is unable to raise the price of this product.Which of the following options is most reasonable,assuming Chastain employs a target costing pricing strategy?
A) Use less expensive materials to make the product.
B) Raise prices under the assumption that the company's competitors will follow suit.
C) Target advertising to high income customers.
D) Return to the old allocation method which produces a lower amount of estimated cost.

Question

Quizplus · Accepted Answer

Target pricing (or target costing)starts with determining the price customers are willing to pay.The company then attempts to produce the product at a low enough cost to sell it at the price customers demand.Since the cost of one of the company's products is above its current selling price,the company should attempt to reduce one or more components of the product's cost.

Chastain Company Recently Implemented an Activity-Based-Costing System