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 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

Since the cost of the product is already above its selling price, the company cannot raise the price any further. Therefore, the only viable option is to reduce the cost of production by using less expensive materials. This will allow the company to maintain its current selling price while also improving profitability.

Chastain Company Recently Implemented an Activity-Based Costing System