Target Costing (Pricing Decisions)

Question 1

3C’s to Consider in Pricing Decisions

Answer 1

Customer
Competitor
Costs

Question 2

3 Approaches in Pricing

Based on competitor

Answer 2

Going-Rate Pricing
- cost is equal to competitor’s price

Bidding
- lowest price among bidder

Target Costing
- selling price is known before product is developed

Question 3

Proper Order of Steps in Target Costing
- Find target cost (MP less Desired Profit)
- Decision
- Determine MP
- Life cycle costs → reduced to target cost by value engineering

Answer 3

Step 1 : Determine the market price

Step 2 : Find the Target Cost (Market Price - Desired Profit)

Step 3 : Life cycle costs reduced to target cost by value engineering

Step 4 : Drop product if not attainable