ACCA Applied Skills · Performance Management · Target costing
Which of the following is most likely to be a feature of the target costing process for a new product?
Target costing involves cross-functional teams, such as design, marketing and production, working together from the design stage. Most of a product's costs are committed at that point, and the team must balance customer requirements, price and cost to meet the target.
- AIt is applied mainly after production starts, to control actual spending
- BIt involves the design, marketing and production teams working together from the design stageCorrect
- CIt relies on historical cost records to set the selling price
- DIt ignores customer requirements and focuses solely on cost minimisation
Explanation
Target costing is applied at the design and planning stage, when most of a product's cost is determined. It requires cross-functional teamwork so that customer needs, cost and design are balanced. It is market-driven rather than historical-cost-driven.
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