Target costing is best described as which of the following?

Target costing is best described as which of the following?

• A. Target costing is a method to minimize production time.
• B. A pricing-driven approach that sets product cost targets to meet desired selling price and margin.
• C. Target costing is only used for service sectors.
• D. Target costing ignores selling prices.

Answer: (B)

Target costing is a pricing-driven approach that sets product cost targets to meet a desired selling price and margin. It begins with the market price customers are willing to pay, subtracts the required profit, and yields a target cost. The design and production teams then work to design and source within that target, using value engineering and cross-functional collaboration to hit the cost without sacrificing essential value. This ensures the product is both competitive in price and profitable. It’s not about simply minimizing production time, it isn’t limited to service sectors, and it relies on selling prices to establish cost objectives rather than ignoring them.

Target costing is a pricing-driven approach that sets product cost targets to meet a desired selling price and margin. It begins with the market price customers are willing to pay, subtracts the required profit, and yields a target cost. The design and production teams then work to design and source within that target, using value engineering and cross-functional collaboration to hit the cost without sacrificing essential value. This ensures the product is both competitive in price and profitable. It’s not about simply minimizing production time, it isn’t limited to service sectors, and it relies on selling prices to establish cost objectives rather than ignoring them.