David Corporation manufactures a single product that has a cost of $250. The company uses a 60% markup on manufacturing cost to arrive at a selling price of $400, which results in a price that is higher than that of the leading competitors. If David adopts the approach known as target costing, the company will first:

Multiple Choice

• Re-engineer the product.

• Obtain a better understanding of the competitors' prices.

• Reduce the 60% markup rate.

• Reduce the $250 cost.

• Change to a markup on life cycle cost rather than manufacturing cost.