Part 2. Section C.3.

Pricing

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Target Costing

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Target costing is a method that has resulted directly from the intensely competitive markets in many
industries such as cameras and automobiles.(B)

Target costing determines the desired cost for a product on the basis of a given competitive price, such
that the product will earn a desired profit. Cost is thus determined by price. (B)

Target costing is the process of determining the maximum allowable cost for a new product and then
developing a prototype that can be profitably made for that maximum target cost figure.(G)

The firm using target costing must often adopt strict cost reduction measures or redesign the product
or manufacturing process to meet the market price and remain profitable.(B)

Target cost = Anticipated selling price - Desired profit

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THE LAWS OF DEMAND AND SUPPLY

Managers are more likely to be successful if they understand how their actions and various
governmental policies or collusive actions (e.g. , cartels) affect their market and firm. A market
is simply a collection of buyers and sellers meeting or communicating in order to trade goods
or services.

The demand curve illustrates the maximum quantity of a certain good that consumers
are willing and able to purchase at each and every price (at any given price), all else
equal.

Quantity demanded is defined as the quantity of a good (or service) individuals are willing
and able to purchase at each and every price (at any given price), all else being equal.

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CMA EXAM

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V. MARKET STRUCTU RES AND PRICING

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