Which statement best describes target costing?
A) Target costs are internally driven.
B) The principal challenge of target costing is finding the cause of the costs.
C) It is a useful tool for establishing cost reduction goals for products in the design stage.
D) It is the difference between the sales price needed to capture a predetermined market share and the desired per-unit gross profit.

Question

Quizplus · Accepted Answer

Target costing is a process of determining the maximum cost that can be incurred on a product, based on the price the customer is willing to pay, and the desired profit margin. It is a useful tool for establishing cost reduction goals for products in the design stage, as it helps to design products that can be produced at a cost that will make a sufficient profit. Option A is incorrect because target costs are based on the external customer's needs and not determined internally. Option B is incorrect because the principal challenge of target costing is to design a product that meets the customer's price expectations while still making a profit. Option D is incorrect because it describes target pricing, not target costing.

Which Statement Best Describes Target Costing