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 $36,000. Assume further that the Camry’s total manufacturing cost for the upcoming model year is estimated to be $29,500 and that Toyota requires a 20% profit margin on selling price (which is equivalent to a 25% markup on product cost).
a. What price will Toyota establish for the Camry for the upcoming model year?
b. What impact will target costing have on Toyota, given the assumed information?