Final answer:
In the target costing process, after determining the cost structure, the second step is to Determine a target selling price. This step involves setting a maximum price point that reflects what the market will bear and is essential in defining subsequent cost and profit expectations.
Step-by-step explanation:
The process of target costing involves multiple steps of planning and analysis to determine the best cost structure for a company's product. The second step, typically, after determining the cost structure, is to Determine a target selling price. This action implies defining what the market is willing to pay for a product before a company can realistically establish a profit goal and compute a target cost. In the context of target costing, this process of establishing a price ceiling is crucial because it helps to work backwards in determining all other variables, such as the target profit and the necessary cost reductions to meet profitability goals.
During this step, a firm may also utilize mathematical models to predict costs and execute a cost/benefit analysis, assessing the marginal costs and benefits to determine an optimal price that covers costs and achieves profit objectives. Knowing the target selling price sets the stage for subsequent steps such as computing a target cost, selecting cost drivers, and undertaking value engineering to ensure the product can be produced within the required cost constraints.