Target Costing

Toyota Motor Corporation $($TM$)$ uses target costing. Assume that Toyota marketing personnel estimate that the competitive selling price for the Camry in the upcoming model year will need to be $$27,000.$ Assume further that the Camry's total unit cost for the upcoming model year is estimated to be $$22,500$ and that Toyota requires a $20\%$ profit margin on selling price $($which is equivalent to a $25\%$ markup on total cost$).$

a$.$ What price will Toyota establish for the Camry for the upcoming model year?

$

b$.$ Since the estimated manufacturing cost exceeds $$ the target cost, Toyota must reduce $$ its total costs to maintain competitive pricing within its profit objectives.

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