Final answer:
A company focuses most on target cost when competing on price in competitive markets, using it to set a competitive price point. Target cost is found by subtracting desired profit from expected sale price, and is influenced by cost structure and market analysis.
Step-by-step explanation:
Companies place the greatest focus on target cost when they are involved in price-based competition and seek to enter a market at a competitive price point. Target cost is determined by subtracting the desired profit margin from the anticipated selling price. This accounting method is crucial in sectors with fierce competition and where cost leadership can be a significant advantage. Companies examine their total costs and divide them into fixed and variable costs, then calculate average total cost, average variable cost, and marginal cost. The analysis of sales and revenue, combined with an understanding of the market structure—such as market power, product differentiation, and barriers to entry—helps to refine the target cost to ensure that it is aligned with long-term profitability goals and production and market realities.
In business, a company places the greatest focus on its target cost when it wants to determine the cost at which it can sell a product while still achieving a desired level of profit. The target cost is the maximum cost that a company can afford to incur to produce and sell a product at a specific price while meeting its profit goals. The target cost is determined by considering various factors such as market demand, competition, desired profit margin, and cost of production. It involves analyzing the company's cost structure, including fixed costs and variable costs, and determining how these costs can be managed and reduced to achieve the target cost.