Test: Target Costing - UGC NET MCQ

The ongoing activities phase in the target costing process involves continuous efforts to reduce production costs. This may include practices like kaizen costing, which focuses on eliminating waste in production processes to enhance efficiency and reduce costs over time. By implementing continuous improvement initiatives, such as waste reduction and supplier cost management, companies can achieve additional gross margin, enabling them to lower product prices and stay competitive in the market.

- Assertion is correct: Target costing is indeed less applicable in service businesses with labor-centric costs.

- Reason is incorrect: Although service businesses have different cost structures, this doesn't fully explain the limited application of target costing.

- The Reason is false, making it not the correct explanation of the Assertion regarding target costing in service businesses.

Target costing is vital for achieving profitability in a manufacturing setting as it involves planning for price points and margins ahead of production. By setting these targets early on, companies can align their design and production processes to meet these cost and margin goals efficiently. This proactive approach helps in maintaining profitability by ensuring that products are developed in a cost-effective manner.

The primary purpose of conducting research in the target costing process is to review the marketplace for product features and pricing. This step involves understanding customer preferences, determining product features that customers value, and estimating the target price at which the product can be sold with a certain set of features. By conducting this research, the design team gains insights into customer needs and market expectations, essential for setting the right target cost for the product.

- Assertion is correct: Target costing is indeed less critical for companies with few legacy products.

- Reason is correct: Long-term profitability for such companies is indeed more tied to market penetration and coverage.

- The Reason is not the correct explanation of the Assertion, as it does not directly correlate with the necessity of target costing.

In the target costing process, engineers and procurement personnel take the lead in creating the product. Engineers design the product to meet the cost target through various design iterations to reduce costs, while procurement staff play a crucial role in determining component pricing, quality levels, and managing supplier relationships to achieve the target cost. Their collaboration is essential in ensuring that the final product meets both cost and quality requirements.

Target costing is considered an essential tool for companies in product development because it enables the continuous monitoring of products from the initial design phase throughout their entire life cycle. This approach ensures that products are consistently evaluated against predetermined cost, price, and margin targets, allowing companies to make informed decisions and adjustments at every stage of the product development process.

Target costing plays a crucial role in a company's product strategy by allowing the management team to plan ahead for the desired price points, product costs, and margins for new products. If a product cannot be manufactured at these planned levels, the design project may be canceled. This approach provides a powerful tool for continuously monitoring products from the design phase throughout their life cycles, enhancing the company's ability to achieve consistent profitability.

- Assertion is correct: Companies do tend to use the cost reduction approach tied to components for routine upgrades.

- Reason is incorrect: Incremental cost reductions may not always be achieved through this approach.

- The Reason is not the correct explanation of the Assertion, as it oversimplifies the outcomes of the approach.

- Assertion is correct: Target costing is indeed most suitable for companies launching new products frequently.

- Reason is correct: Target costing aids in planning profitable product suites.

- The Reason is the correct explanation of the Assertion, as it elucidates how target costing helps in achieving profitability.