Final answer:
Target costing is the cost management technique that aims to determine product cost based on a given competitive price and a desired profit, involving managing costs from the design stage to meet market-driven pricing while ensuring profitability.
Step-by-step explanation:
The cost management technique that determines product cost based on a given competitive price and desired profit is known as target costing. This method starts with the competitive price of the product and subtracts the desired profit margin to arrive at the maximum cost that the company can afford while still making the desired profit. Companies use this approach to manage costs during the design and development stages to meet the cost targets.
In essence, target costing reverses the traditional process of first developing a product, then pricing it based on cost, plus a profit margin. Instead, it focuses on the price that the market will bear and works backward to ensure that production costs will allow for that price. This helps a company stay competitive in the market and ensures that it can offer products at prices that customers are willing to pay while maintaining profitability.