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 $27,000. Assume further that the Camry's total unit cost for the upcoming model year is estimated to be $22,500 and that Toyota requires a 20% profit margin on selling price (which is equivalent to a 25% markup on total cost).

a. What price will Toyota establish for the Camry for the upcoming model year? $

b) Since the estimated manufacturing cost (exceeds/or is less than) the target cost, Toyota (May increase/must reduce) its total costs to maintain competitive pricing within its profit objectives.

Explanation / Answer

a. Toyota will establish a price of $ 27,000 for the Camry new model, as target costing technique is being followed.

b. If the price is to be $ 27,000, and the company requires a 20% profit margin on selling price, its total cost cannot exceed 27,000/100 x80 or $ 21,600. Since the estimated manufacturing cost of $ 22,500 exceeds the target cost, Toyota must reduce its total costs to maintain competitive pricing within its profit objectives.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.