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Hello Sir. I’m having problem with this question from kaplan. Please help me.
The following statements are all steps in the implementation of the target costing process for a product.
1. Calculate the target cost.
2. Calculate the estimated current cost based on the existing product specification.
3. Set the required profit.
4. Set the selling price.
5. Calculate the target cost cap.What is the correct sequence if target costing were to be used?
My answer is: 4,3,1,2,5
The book answer: 2,3,4,1,5You calculate/ estimate the current cost based on current specification
You then decide what profit you want – you deduct this from the competitive price
That gives you your selling price
You now calculate your target cost
(diff between this and the est cost) gives you
The target cost gap
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