Question

Mojave Corporation manufactures a single product that has a cost of $350. The company uses a 70% markup on cost to arrive at a selling price of $595, which results in a price that virtually always exceeds that of the market leaders. If Mojave changes to the approach known as target costing, the company will first:reduce its 70% markup rate.trim its $350 cost.attempt to re-engineer its product.undertake a thorough study of competitors' prices.change the markup so that it is based on sales rather than based on cost

Answer 1

Mojave Corporation and Target Costing:

If Mojave changes to the approach known as target costing, the company will first: trim its $350 cost.

Step-by-step explanation:

Target Costing is a costing technique where a desired profit margin is set and deducted from a competitive market price. The selling price equals the target cost plus the profit margin. This implies that there is a target cost above which a manufacturer will not exceed given its desired profit and a competitive market price. Therefore, cost must be trimmed to achieve the desired profit level given a market price.

Mojave needs to plan ahead for the price points, product costs, and profit margins it wants to achieve. If it cannot achieve these, then it will be in its best interest not to continue production.