Answer (A) is correct . Target costing begins with a target price, which is the expected market price given the company’s knowledge of its customers and competitors. Subtracting the unit target profit margin determines the long-term target cost. If this cost is lower than the full cost, the company may need to adopt comprehensive cost-cutting measures. For example, in the furniture industry, certain price points are popular with buyers:? A?couch might sell better at $400 than at $200 because consumers question the quality of a $200 couch and thus will not buy the lower-priced item. The result is that furniture manufacturers view $400 as the target price of a couch, and the cost must be lower.
Answer (B) is incorrect because All product cost categories are addressed by target costing.
Answer (C) is incorrect because All product cost categories are addressed by target costing.
Answer (D) is incorrect because The manner in which raw materials costs are accounted for is irrelevant.
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