MANAGERIAL ACCOUNTING QUIZ 2 - Essay Example

Thompson will not carry an inventory of these items. When pricing products, many companies use target costing and/or cost-plus pricing methods. A. Briefly explain how target costing is applied to new products. B. How does target costing differ from cost-plus pricing? A. When using target pricing for new products, a market research is conducted to preferred price the customers are willing to pay for a product and the top list of preferred features in the product. Based on this price and a standard profit markup, the total cost on the product is arrived at.

An analysis is made on the features that can be added to the product at the specified cost. The features are then finalized by adjusting the price of the product to meet the customer preferences. B. In the traditional cost plus pricing, fixed and variable costs are applied and then a profit markup is added to arrive at the final selling price. In the target pricing method, the selling price is fixed for a product and then a desired profit markup is subtracted from this price to arrive at the cost of the