Question

The four tasks that follow take place in the concept known as target costing:

1—Value engineering.
2—Establish a target selling price.
3—Establish a target cost.
4—Establish a target profit.
Which of the following choices correctly depicts the sequence of these tasks?
A. 1,3,4,2.
B. 3,1,4,2.
C. 2,4,3,1.
D. 2,3,1,4.
E. Some other sequence not listed above.

Answer 1

The correct sequence of tasks in target costing is C: 2,4,3,1, which starts with establishing a target selling price, followed by target profit, target cost, and finally value engineering.

Step-by-step explanation:

The four tasks in target costing are critical aspects of strategic pricing and product development. The correct sequence of these tasks begins with establishing a target selling price, which reflects what customers are willing to pay based on the value they perceive in the product.

After setting a target selling price, the next step is to establish a target profit, which is an aspiration for the financial gain that the company hopes to achieve from the product. Following the determination of target profit, target cost is established.

This cost represents the maximum allowable expenses to ensure profitability at the set target selling price and target profit levels. Lastly, value engineering is employed with the aim of reducing production costs while maintaining quality, ultimately achieving or surpassing the target cost.

Through value engineering, companies might find innovative ways to construct products more cost-effectively without compromising on functionality and customer satisfaction.

Given these steps, the correct order in the concept of target costing is represented by the sequence 2-4-3-1 which fits choice C: Establish a target selling price, establish a target profit, establish a target cost, and then value engineering. This approach aligns with business best practices of setting prices that firms follow by combining cost of production and desired profit to formulate a competitive price strategy.