Management Accounting Practice

Topics

Capital Expenditure
- Financial Reporting
Costing Methods
Marginal Costing
- Absorption Costing
Standard Costing
Target Costing
- Pricing Strategy

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Pricing Strategy : Management Accounting MCQ Practice Questions & Answers (English) - ObjectiveMcq

Management Accounting Practice

All Practice

Topics

Capital Expenditure
- Financial Reporting
Costing Methods
Marginal Costing
- Absorption Costing
Standard Costing
Target Costing
- Pricing Strategy

PracticeManagement AccountingTarget CostingPricing Strategy

Pricing Strategy in Management Accounting : Practice MCQ Questions & Answers with Explanations

1 practice sets · Page 1 of 1

Management AccountingEasyTarget CostingPricing Strategy

Which of the following best describes target costing?

Setting a cost by subtracting a desired profit margin from a competitive market price

Setting a price by adding a desired profit margin to a production cost

Setting a cost for use in the calculation of variances

Setting a selling price for the company to aim for in the long run

Cost set by government regulation

Correct Answer:

(A) Setting a cost by subtracting a desired profit margin from a competitive market price

Explanation:

Correct Answer: A

Explanation:

Target costing is a market-driven pricing strategy. A company starts with the price customers are willing to pay in a competitive market, then subtracts the desired profit margin to arrive at the maximum allowable (target) cost to produce the product. This is the reverse of cost-plus pricing (option B), which adds a margin to cost to determine price.

Target costing is especially useful in competitive markets where the selling price is largely determined externally, making internal cost management critical to profitability.