Mulan Inc manufactures usb drives. The market for usb drives is very competitive

Question

Mulan Inc manufactures usb drives. The market for usb drives is very competitive. The current market price for usb drives is $55. Mulan would like a profit of $15 per drive. How can Mulan accomplish this objective?

Add $15 to the selling price and make sure cost does not exceed $55

Set a target cost of $40

Use variable costing so it can compute its break even point

Use absorption costing to make sure fixed cost is properly accounted for.

Add $15 to the selling price and make sure cost does not exceed $55

Set a target cost of $40

Use variable costing so it can compute its break even point

Use absorption costing to make sure fixed cost is properly accounted for.

Explanation / Answer

Target costing is used to set prices that which earns the desired profits to the firm. Under target costing, a target cost is set. Firm will take appropriate measures to control the costs and to make the desired profits. Target costing is used when the firm cannot increase sale price but highly intending to increase profits.

Option B is correct option.

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