In target costing, managers can:
A) Focus on motivating customers to pay a higher price
B) Push some cost reductions to suppliers
C) Try to establish their product as a commodity
D) Justify higher costs by making production processes more complex

Question

Quizplus · Accepted Answer

Target costing involves setting a target cost for a product and then working backwards to determine the necessary selling price to earn a desired profit. One way managers can achieve the target cost is by pushing some cost reductions to suppliers. This can involve having suppliers offer lower prices for raw materials or components, or working with them to improve their own processes to reduce costs. Option A is incorrect because the focus in target costing is on setting a price that customers are willing to pay, not motivating them to pay a higher price. Option C is incorrect because target costing typically involves creating a differentiated product that offers unique features and benefits to customers, not one that is seen as a commodity. Option D is incorrect because target costing involves simplifying production processes and reducing costs, not making them more complex.

In Target Costing, Managers Can