When pricing products, many companies use target costing and/or cost-plus pricing methods.Required:A. Briefly explain how target costing is applied to new products.B. How does target costing differ from cost-plus pricing?C. Can an activity-based costing system be used with target costing? Explain
What will be an ideal response?
A. Target costing begins with the likely market price for the new product and subtracts an acceptable profit margin to arrive at the manufacturing cost necessary to achieve the target margin. Then, to achieve the target cost, the product may need to be redesigned and/or re-engineered.
B. In cost-plus pricing, cost is the starting point. An acceptable profit margin is then added to arrive at the desired selling price. In target costing, the manufacturing cost is the target, determined by starting with market price and subtracting a profit margin.
C. Yes. Activity-based costing helps to focus on the various activities required to manufacture a product and the costs of those activities. Hence, it is more useful than traditional volume-based costing systems that spread overhead rather than base overhead assignment on the utilization of specific activities. Generally speaking, the end result is improved costing of goods and/or services.
Activity-based costing can also help focus attention on non-value-added activities that consume resources and increase a product's cost. Reduction or elimination of these activities can help achieve the product's target cost.
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Imogene takes her diamond solitaire ring to Sparkle Jewelry Shop to have the prongs holding the diamond retipped and have the ring cleaned. The clerk at Sparkle says she will have to leave the ring and that it should be ready in about a week. When Imogene returns in a week to get her ring, she finds out that the ring has been sold. Which of the following is true?
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Publicly owned corporations are those which are financed by the proceeds from the treasury securities
Indicate whether the statement is true or false