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Question in Revision Kit (Question #50 pg 17)
Below is the true or false Question.
“A risk with target costing is that cost reductions may affect the perceived value of the product”It says the answer is TRUE.
I am wondering how that is true. There aren’t many occasions where the customer can know about the cost of a product. May be the price could affect the perceived value, but I don’t think cost could affect the perceived value of the product.
Thank you always!
Target costing will start with the selling price of a particular product and work back to the cost by removing the profit element.
This means that the company has to find ways of not exceeding that cost.
So these cost reduction measures may reduce the perceived value of a product to customers, so that the target selling price becomes unachievable for the sales volume required.
Hope this clarifies
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