toyota motor corporation uses target costing. assume that toyota marketing perso

Question

toyota motor corporation uses target costing. assume that toyota marketing personnel estimate that the competitive selling price for the camry in the upcoming model year will need to be 24,000. assume further that the camry's total unit cost for the upcoming model year is estimated to be 19,800 and that toyota requires a 20% profit margin on selling price (which is equivalent to at 25% markup on total cost)

a. what price will toyota establish for the camry for the upcoming model year?

b. what impact will target costing have on toyota, given the assumed information?

Explanation / Answer

a. The price is set at the estimated market price required to stay competitive, $24,000. Under the target cost concept, the mrket decides the price not the mark up.

b. Target Product Cost = $24,000 - (24,000 X 20%)

Target Prodcut Cost = $24,000 - 4,800

Target product cost - 19,200

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