Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job. The average job would cost $30. Victor's uses target costing. Victor's Detailing should: a. find a way to reduce costs. b. sell their services at the price customers are willing to pay. c. sell their business. d. ask their customers to pay more. e. reduce their required percentage to stay in business.

Question

Business

Brenton Powell

20 January, 14:56

Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job. The average job would cost $30. Victor's uses target costing. Victor's Detailing should: a. find a way to reduce costs. b. sell their services at the price customers are willing to pay. c. sell their business. d. ask their customers to pay more. e. reduce their required percentage to stay in business.

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Answers (1)

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Arturo Castaneda · Answer 1

Answer: b. sell their services at the price customers are willing to pay

Explanation:

Target Costing involves the proper research of a product's cost before going into production. It focuses on how to reduce costs and maintain a profitable margin that the company can benefit from both initially as well as over the long run.

In using Target Costing, the company assumes an Anticipated price, this is the price of the market or the price that consumers are willing to pay. This is a KEY assumption with Target Costing and so a company using Target Costing will sell at this Anticipated Price. For this reason option B is correct as Victor's Detailing will charge at the rate the customers will be willing to pay.