The Product Strategy in Which Companies First Determine the Price

question 146

Multiple Choice

The product strategy in which companies first determine the price at which they can sell a new product and then design a product that can be produced at a low enough cost to provide adequate operating income is referred to as ________.

• A) cost-plus pricing
• B) target costing
• C) kaizen costing
• D) full costing

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Definitions:

High-Low Method

A technique in managerial accounting used to estimate fixed and variable costs by analyzing the highest and lowest levels of activity and the associated costs.

Variable Cost

Expenses that change in proportion to the activity of a business such as raw materials and direct labor costs.

Fixed Cost

Payments that do not vary with the amount of production or sales activities, including costs like renting spaces, salary payouts, and insurance contributions.

Operating Leverage

Operating leverage describes the extent to which a company can increase its profits by increasing sales, highlighting the ratio of fixed costs to variable costs.