Target costing determines the desired cost for a product upon the basis of a given competitive price such that the product will:
A) Earn at least a small profit.
B) Earn a desired profit.
C) Earn the maximum profit.
D) Break even.
E) Sell the highest volume.

Question

Quizplus · Accepted Answer

Target costing is used to determine the cost at which a product can be sold at a desired profit margin. Therefore, the desired profit is the key factor considered in target costing, making option B the best choice. Option A is incorrect because earning a small profit may not be enough to cover all costs and support the business. Option C is incorrect because the goal of target costing is not to earn the maximum profit, but to earn a desired profit while remaining competitive. Option D is incorrect because break even is not the ultimate goal of target costing, but rather to earn a profit. Option E is incorrect because selling the highest volume may not necessarily result in the desired profit margin.

Target Costing Determines the Desired Cost for a Product Upon