Question: What Is A Target Cost Per Unit Quizlet?

target cost per unit.

Estimated lon-run cost per unit of a product or service that enables the company to achieve its target operating income per unit when selling at the target price.

Target cost per unit is derived by subtracting the target operating income per unit from the target price.

What is a target cost per unit?

Target Cost per unit: Target cost per unit is the estimated or predicted long run cost per unit of production of any product or service that when sold at a desired target price would enable a company to achieve or attain a predefined targeted income per unit.

What do you mean by target costing?

It involves setting a target cost by subtracting a desired profit margin from a competitive market price. A target cost is the maximum amount of cost that can be incurred on a product, however, the firm can still earn the required profit margin from that product at a particular selling price.

In what situation does a company place the greatest focus on its target cost How is the target cost determined?

In what situation does a company place the greatest focus on its target cost? How is the target cost determined? When it cannot influence the market price. The target cost is determined by subtracting the desired profit per unit from the market-determined selling price.

When the firm uses the target costing approach to pricing the target cost per unit is the difference between the per unit target price and the per unit target?

When the firm uses the target-costing approach to pricing, the target cost per unit is the difference between the per unit target price and the per unit target. contribution margin. production costs. gross margin.

Who uses target pricing?

Target cost is then given to the engineers and product designers, who use it as the maximum cost to be incurred for the materials and other resources needed to design and manufacture the product. It is their responsibility to create the product at or below its target cost.

What is the formula for target cost?

Definition: The target cost of a product is the expected selling price of the product minus the desired profit from selling it. In other words, target cost is really a measure of how low costs need to be to make a certain profit.

How is target cost and different from standard cost?

Differences between standard cost and target cost. A standard cost is predetermined budgeted unit cost of product or service, under specified working conditions. A target cost, on the other hand, is the desired cost. It may not be achieved under current working condition but will require changes in production methods.

What is cost gap?

The target cost gap is the estimated cost less the target cost. When a product is first manufactured, its target cost may well be much lower than its currently-attainable cost, which is determined by current technology and processes.

What is the target cost and how is it determined?

Target costing is an approach to determine a product’s life-cycle cost which should be sufficient to develop specified functionality and quality, while ensuring its desired profit. It involves setting a target cost by subtracting a desired profit margin from a competitive market price.

What are the disadvantages of target costing?

Target costing can create an unrealistic burden on the production department when the estimated cost is too low. Failure of proper estimation of the quantity may lead to a loss when the business fails to sell all the produced quantity.

What are the objectives of target costing?

The fundamental objective of target costing is to enable management to use proactive cost planning, cost management and cost reduction practices whereby, costs are planned and managed out of a product and business, early in the design and development cycle, rather to an during the later stages of product development

What is the first step in target cost pricing?

The target costing process begins by establishing a selling price, based on market research, for the new product. From this target selling price, the desired (target) profit is subtracted to determine the target cost. In all likelihood, this target is below the company’s current manufacturing cost.