David Corporation manufactures a single product that has a cost of $250. The company uses a 60% markup on manufacturing cost to arrive at a selling price of $400, which results in a price that is higher than that of the leading competitors. If David adopts the approach known as target costing, the company will first:
A) Reduce the 60% markup rate.
B) Re-engineer the product.
C) Obtain a better understanding of the competitors' prices.
D) Reduce the $250 cost.
E) Change to a markup on life cycle cost rather than manufacturing cost.

Question

Quizplus · Accepted Answer

DTarget costing involves setting a target cost by first understanding the market price (competitors' prices) and then working backward to reduce manufacturing costs to meet that target price while ensuring profitability.

David Corporation Manufactures a Single Product That Has a Cost