Final answer:
The costing technique that ensures a stipulated profit at an estimated market price is called target costing. In this approach, the desired profit margin is subtracted from the market price to define the maximum cost a product can have, guiding firms in cost management and production decisions.
Step-by-step explanation:
The costing technique that ensures a stipulated profit when a product is sold at its estimated market price is known as target costing. Target costing is a pricing method used by firms. It involves subtracting the desired profit margin from a competitive market price to determine the maximum cost that a new product can have. Once the maximum cost is determined, the company works backward to ensure that the production of the product meets this cost constraint.
When firms analyze their cost structure from a long-run perspective, they are essentially focused on how changes in production affect their marginal revenue and marginal cost. This approach to profit maximization is crucial when firms lack the necessary data to draw a complete total cost curve. By experimenting with production quantities and observing the effects on profits, firms can adjust their strategies to better align with their defined targets for cost and profit.