provide a rebuttal to the following posts:

1. Economic theory is a set of principals that outline how different economy types function. The purpose of economic theory is to explain the behavior of various economic elements. The theory suggests a products demand relates mainly on its pricing. Typically the cheaper a product or service the higher the demand. Profit maximizing price is a process managers use to determine the avenue that will lead to the highest possible profit. A known aspect of economic theory is the idea profits are maximized when marginal revenue is earned from selling goods equivalent to the marginal cost of producing that good or service.

1. Target costing involves:

a. Specify product features and price.

b. Determine a desired profit level.

c. Compute the target cost (steps a+b)

d. Design the product to meet the target cost.

Target cost is a pricing strategy involving setting a price for a product or service based on the costs that the production entail. Target costing is focused around a particular price point. A target cost integrates a products features, price, design, and cost to manufacture a product that will earn a good profit. It is calculated by subtracting the selling price from the target profit margin.

References:

Darko,George. 2023, Week 10 Lecure,

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2. How would a manager use economic theory to determine profit-maximizing price for a service or product?

Economic theory suggests that the demand for a product or service is a function of its price. When prices are lower, the demand for the product/service can be higher.

If the quantities demanded at various prices are estimated, then the profit-maximizing price can be identified. This is done through calculating the contribution margin per unit (UCM) by subtracting unit variable costs (UVC) from the price and calculating the total contribution margin (TCM) by multiplying unit contribution margin (UCM) by the quantity demanded. Then the profit is calculated subtracting the total fixed costs from the total contribution margin and when this allows for price selection for the highest profit.

A manager can use this method to assist in determining price versus demand and vice versa.

What is the process of target costing? How is target cost calculated?

Target costing is an integrated approach to determining product features, product price, product cost, and product design to enable the manufacturer to earn a reasonable profit.

Target costing is found by subtract desired profit margin per sale from target sale price and resulting in target cost.