Kreem Corporation is considering determine the selling price for the innovative product they having been completing research on over the past two years. They are at the point where they are getting ready to start production. Fortunately, before the started production they saw the chart in the Cost Accounting textbook. They took this to heart and want to understand the difference between cost-plus pricing and target costing.

1. Explain what the text was referring to as locked-in costs.
2. Explain how cost-pus and target costing differ. Which would the chart support over the other?
3. What can be done if the selling price comes to more that the selling price determined using cost-plus pricing?
4. What can be done if the selling price comes to higher than market price under target costing?
5. What can be done if the target cost comes to less than estimated cost under target costing?

Locked-in cost curve Cumulative Costs per Unit $900 $840 $780 $720 $660 $600 $540 $480 $420 $360 $300 $240 $180 $120 $60 Cost- incurrence curve $0 Manufacturing R&D and Design Mktg., Dist., and Cust. Serv. Value- Chain Functions