   Chapter 12, Problem 11CDQ

Chapter
Section
Textbook Problem

How docs the target cost concept differ from cost-plus approaches?

To determine

Concept Introduction:

Target Pricing:

Target Pricing is the method of deciding the price or cost for the product. The calculations are done taking a target profit % as a basis. Variable, Fixed and Mixed Cost:

There are three types of costs according to the unit of production; Variable, Fixed and Mixed. Variable costs change proportionally with the number of units produced and variable cost per unit remains constant. Fixed Cost remains same in totality irrespective of the number of units produced. The mixed cost is the mix of variable and fixed cost, some of its part is fixed and some variable.

To Indicate:

The difference between the target cost and cost plus approach

Explanation

Target Pricing is the method of deciding the price or cost for the product. The calculations are done taking a target profit % as a basis.

There are three types of costs according to the unit of production; Variable, Fixed and Mixed. Variable costs change proportionally with the number of units produced and variable cost per unit remains constant...

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