Which Equation Better Describes Target Costing

question 88

Multiple Choice

Which equation better describes target costing?

• A)Selling Price - Desired Profit = Target Costs
• B)Selling Price - Target Costs = Profit
• C)Target Variable Costs + Contribution Margin = Selling Price
• D)Selling Price = Target Variable Costs + Target Fixed Costs + Profit

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Definitions:

Debit Memorandum

A document issued by a buyer to a seller indicating returned goods or a request for a price reduction, increasing the buyer's accounts payable.

Sales Returns and Allowances

A reduction in sales revenue for returned goods or provided allowances due to dissatisfaction or defects.

Merchandise Inventory

Goods that a merchandising company holds for the purpose of resale to customers in the ordinary course of business.

Freight Charges

Costs associated with transporting goods from one place to another, typically paid by the buyer or seller depending on the shipping terms.