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.