Target Costing Toyota Motor Corporation uses target costing. Assume that Toyota

Question

Target Costing Toyota Motor Corporation uses target costing. Assume that Toyota marketing personnel estimate that the competitive selling price for the Camry in the upcoming mode 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 profit objectives. the target cost, Toyota- its total costs to maintain competitive pricing within its

Explanation / Answer

a)

The price that Toyota will establish based on mark up of 25% on cost will be "

$22,500 + +$5625 = $ 28,125

b)

Target Price is given as $27,000

thus the target margin will be $27000/5 = $5400

Thus the taret cost should be $ 21,600

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