The correct answers are:

• A target cost is a product cost estimate which is determined by subtracting a desired profit margin from a competitive market price

• The first stage of the target costing process involves analysing the external environment

The incorrect answers are:

• Target costing focuses on production and selling costs rather than costs over the whole product lifecycle (target costing is seen as an activity which is aimed at reducing lifecycle costs of new products. It therefore incorporates costs over the whole lifecycle including R&D and product launch costs.)

• The first stage of the target costing process is to estimate the cost to produce the product (the first stage is to analyse the external environment in order to ascertain what customers require and what competitors are producing. This enables a company to specify the products target market share.