A Critical Assumption When Using Target Profit Pricing Is That

question 77

Multiple Choice

A critical assumption when using target profit pricing is that

• A) a higher average price will not cause the demand for a product to fall.
• B) a higher average price will cause new competitors to join the industry.
• C) a higher average price will be offset by reductions in manufacturing costs.
• D) profit is tied to the current value of the dollar in relation to foreign currencies.
• E) any price increase will be followed quickly by similar moves from all of your competitors.

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Definitions:

Cost Price Approach

A valuation method focusing on determining the totals costs incurred to acquire or produce an asset, including all expenses.

Income From Operations

This refers to the profit realized from a business's normal core operations, excluding deductions of taxes and interest.

Transfer Price

The price at which goods and services are transferred between departments or divisions within the same company, often used for budgeting and accounting purposes.

Market Price

The present cost at which a good or service is available for purchase or sale.