Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q19-12RQ

Expert-verified
Horngren'S Financial And Managerial Accounting
Found in: Page 1063

Short Answer

Explain the difference between the target price and target cost.

Target price is related to the customer’s will to pay for the project and the target cost is the maximum cost that a business incurs to achieve the target price keeping in view of desired profit.

See the step by step solution

Step by Step Solution

Target price

Target price is the amount of price that can be willfully paid by a customer for a product or service. It is the price above which the demand for the product starts declining. In value engineering, this price is used as a yardstick to compute cost

Target cost

Target cost is the maximum cost that a business must maintain to get the desired profit. If the cost goes above the target cost level, then the desired net profit can not be achieved. This is so because due to the increased cost, the sales process would also increase, and thus the demand for the product or service would decline – generating fewer sales revenue.

Difference between the target price and target cost

The difference between the target price and target cost is the amount of desired profit. If the desired profit is deducted from the target price, it would produce the target cost

Most popular questions for Business-studies Textbooks

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.