Drhusseinkhasharmeh drhusseinkhasharmeh suppose that

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Unformatted text preview: ricing approach. pricing Target costing and new product development: Target Exhibit 5-13, p. 219 shows a real company’s target costing process for a new product. The new product has three parts, requires direct labor, and four types of indirect costs. See the Exhibit. four Dr. Hussein Khasharmeh Dr. Hussein Khasharmeh Illustration of target costing: Consider the target costing system used by ITT Consider automotive – one of the world’s target automotive suppliers. What pricing system the Co. use for its products? products? The company forms a target – costing group and charges The it with determining whether the price and costs allow for enough of a profit margin. Factors the group considers in determining the feasibility of earning the desired target profit margin include competitor pricing, competitor inflation rates, and potential cost reductions during inflation and potential both the design and production stages of the product life. Dr. Hussein Khasharmeh Dr. Hussein Khasharmeh Suppose that ITT receives an invitation from Ford (the Suppose customer) to bid on its product. Assume the following data: customer) - The specifications contained in Ford’s invitation lead to an The estimated current manufacturing cost (component parts, direct labor, Manufacturing overhead) of $154. direct - ITT had a desired gross margin rates of 30% on sales, ITT which means that actual cost should make up 70% of the price. price. - Highly competitive market conditions exist and have Highly established a sales price of $200/unit. established If ITT had used cost – plus pricing to bid on the product, the If bid...
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