Question

ConAgra Foods decided its prices had risen too high, so it determined to set a lower price for its products. To make the new price level profitable, ConAgra cut $250 million in costs. What application of cost estimation did this represent? A) target costing B) experience-curve pricing C) ceiling pricing D) the learning curve E) promotional price elasticities

Answer 1

A. target costing

Step-by-step explanation:

To make the new price level profitable, ConAgra Foods used target costing.

Target costing may be seen as an accountancy approach during which companies set targets for costs supported the worth prevalent within the market and therefore the margin of profit they need to earn. Keeping its costs below the relevant targets helps the businesses to get profit.

Target cost = selling price – margin of profit

Profit margin could also be supported cost or selling price .

In most of the industries competition is high which suggests that prices are determined by the interaction of market demand and provide which the market participants i.e. producers can’t change. However, they will control their costs.