In relation to target costing, which of the following best describes target cost per unit?
A) It is the targeted cost of producing one unit to achieve the current year's budgeted profit.
B) It is the estimated long-run cost of a product that enables the company to achieve its target operating income.
C) It is the cost that can be achieved by ensuring that the company produced its products at maximum efficiency.
D) It is the budgeted cost that the company estimates in producing a unit in the current budget period.

Question

Quizplus · Accepted Answer

Target cost per unit is the estimated long-run cost of a product that enables the company to achieve its target operating income. It takes into account both the desired level of profitability and the market price for the product, allowing the company to design and produce products that meet customer needs while also meeting internal financial goals. Option A is incorrect as it only considers the current year's budgeted profit, and not the long-term profitability of the product. Option C is incorrect as it assumes that maximum efficiency can always be achieved, which may not be possible in practice. Option D is incorrect as it only considers the budgeted cost for the current period, and not the long-term cost of the product.

In Relation to Target Costing, Which of the Following Best