Target Costing

Toyota Motor Corporation 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 $28,000. Assume further that the Camry's total unit cost for the upcoming model year is estimated to be $23,200 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 Selectexceedsis less thanItem 2 the target cost, Toyota Selectmay increasemust reduceItem 3 its total costs to maintain competitive pricing within its profit objectives.