Target costing is arrived at by taking the

Question

Target costing is arrived at by taking the

BlackTom AI · Accepted Answer

Let’s break down what target costing means in cost management and how each option aligns or misaligns with the concept.
Option 1: 'selling price minus desired profit'—This captures the core idea of target costing. The process starts with the market-determined selling price and subtracts the target (desired) profit to establish the allowable cost or target cost. This is the standard definition in many costing approaches.
Option 2: 'selling price and subtracting the budget standard cost'—This confuses target costing with a simple budgetary calculation. Subtracting a standard cost from the selling price would yield a gross figure that’s not the target cost; target costing focuses on determining what cost must be achieved to meet the price and profit targets, not simply comparing price to a cost baseline.
Option 3: 'budget standard cost and reducing it by 10%'—This describes a fixed adjustment applied to a standard cost rather than deriving a target cost from price and profit goals. It lacks the pricing and market-driven aspect essential to target costing and introduces an arbitrary reduction not tied to market expectations.
Option 4: 'selling price and adding desired profit'—Adding profit to the selling price doesn’t produce a cost target; it reconstructs revenue requirements rather than setting a permissible production cost. This is more aligned with pricing strategies or markup calculations, not with calculating target cost.
In summary, the concept of target costing hinges on starting from the market-determined selling price and back-calculating the allowable cost by subtracting the desired profit, which aligns with Option 1. The other options mix up the sequence or introduce alterations that do not reflect the target costing method.

Target costing is arrived at by taking the Single choice

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