Describe How Target Costing Assists Management in Determining the Life

question 62

Essay

Describe how target costing assists management in determining the life cycle cost of a product and the approach management would take if the planned level of sales could not be achieved at the cost-plus price.

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Definitions:

Closing Entry Process

The procedure at the end of an accounting period to prepare the accounts for the next period by clearing out revenues and expenses into the Retained Earnings account.

Temporary Accounts

Accounts used to collect information during a single accounting period, which are then transferred to permanent accounts at the end of the period.

Permanent Accounts

Accounts that carry their ending balances over into the next accounting period; these include asset, liability, and equity accounts.

Prepaid Rent

Prepaid Rent represents payments made in advance for rent, which is recorded as an asset on the balance sheet and expensed over time as it is used.