Question

The target costing approach was developed because:

a) Most of a product's cost is determined in the design stage
b) Cost reduction opportunities are primarily found during production
c) The market really determines prices
d) All of the above

Answer 1

The target costing approach was developed to determine product cost in the design stage and identify cost reduction opportunities during production.

Step-by-step explanation:

The target costing approach was developed because most of a product's cost is determined in the design stage. This approach involves setting a target cost based on market price and then designing the product to meet that cost. By considering costs early in the design process, companies can identify cost reduction opportunities and make informed decisions to achieve the desired cost and profit margin.

For example, if a company sets a target cost for a new smartphone based on the price competitors are selling similar phones, they can work backwards to determine the maximum manufacturing cost they can afford. This target cost then drives the design decisions to ensure all components and features of the smartphone can be produced within the desired cost.

In conclusion, the target costing approach was developed because most of a product's cost is determined in the design stage, demonstrating how the market price plays a significant role in determining prices. By focusing on cost reduction opportunities during production, companies can design products that meet customer demands while maximizing profitability.