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how does traditional costing ignores the effect of selling price on the demand for the product?
Traditional costing is simply based on charging a price that is higher than cost (so as to make a profit). It does not ignore the effect of the selling price – they may then (for example) have to reduce the selling price because of competition.
However, the ‘starting’ point is the cost, whereas with target costing the starting point is the selling price and then trying to get the cost down to the target.@johnmoffat said:
It does not ignore the effect of the selling price – they may then (for example) have to reduce the selling price because of competition.ok…..conclusion , is that traditional costing doesn’t ignore the effect of selling price on the demand of the product.
It depends on how you define traditional costing! (Where did you get that expression from – it is not a standard expression at all. There is not really such a thing as traditional costing!!! Unless you are thinking of traditional absorption costing as opposed to activity based costing)
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