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Business Finance Essentials

Target costing sets a maximum cost for a product that allows the firm to earn a required profit margin at a given selling price. With target pricing, the selling price is set first and then the cost is calculated by subtracting the profit margin. Target costing helps control costs throughout the product lifecycle, while target pricing is useful when demand is high and the market-determined price must be met. The balance sheet summarizes a company's assets, liabilities, and shareholder equity at a point in time. It shows what the company owns, owes, and the amount invested. The profit and loss (P&L) account includes all revenues and expenses for a period. It provides insights beyond the balance sheet by

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135 views2 pages

Business Finance Essentials

Target costing sets a maximum cost for a product that allows the firm to earn a required profit margin at a given selling price. With target pricing, the selling price is set first and then the cost is calculated by subtracting the profit margin. Target costing helps control costs throughout the product lifecycle, while target pricing is useful when demand is high and the market-determined price must be met. The balance sheet summarizes a company's assets, liabilities, and shareholder equity at a point in time. It shows what the company owns, owes, and the amount invested. The profit and loss (P&L) account includes all revenues and expenses for a period. It provides insights beyond the balance sheet by

Uploaded by

SWAGATO MUKHERJEE
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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PGDM

COMA – Individual assignment 1


1) Elucidate the concepts of Target Pricing Vs Target Costing.
Ans. A) A target cost is the maximum amount of cost that can be incurred
on a product and with it the firm can still earn the required profit margin
from that product at a particular selling price.
Target Pricing is a pricing strategy in which the selling price of the product
or service is determined first and then the cost is calculated by reducing the
profit margin.
B) Target costing consists of a series of steps. At first, through target pricing,
the company conducts research into market conditions to estimate the
product's selling price. Next, the target cost per unit is calculated by
subtracting the business's required gross margin from the projected selling
price.
Steps for target pricing: 1) Determine the competitive price in the market.
2) Determine the profit margin expected from the product 3) Calculate the
cost by using 1 & 2 i.e. expected Price-Profit
C) Benefits of target costing: Target costing is a helpful tool in product
development. It establishes early on the profitability of a product and
serves as a valuable guide throughout the product's life cycle to reduce the
cost and labour of manufacturing it. Because target costing relies on market
and customer research, it minimizes the need for post-production revisions
to meet customer preferences.
Benefits of target pricing: In some scenarios, rather than calculating the
price from the cost you incur it is more productive to first see how much
price a customer would be willing to pay. The target pricing method is quite
beneficial in these scenarios as the demand is very high. If the price is not in
the range which the market would pay, the product or service would not
sell.
2) Summarize the features of Balance sheet
Ans. The term balance sheet refers to a financial statement that reports a
company's assets, liabilities, and shareholder equity at a specific point in
time. It provides a snapshot of what a company owns and owes, as well as
the amount invested by shareholders.
Key features:
 The balance sheet summarizes a business’s assets, liabilities, and
shareholders ‘ equity.
 It provides a snapshot of the financial position of the company at any
particular point of time.
 It is a tool to measure the growth of an entity. This can be done by
comparing the balance sheet of different years.
 It is an essential document to obtain a business loan.
 Fundamental analysts use balance sheets to calculate financial ratios.
3) Summarize the features of P&L account
Ans. Profit & Loss account is a financial statement prepared by all
companies which takes into account all income and expenses which are
made by the company during a year. Given below are some of the key
features of P&L account:
 The P&L statement is one of three financial statements every public
company issues quarterly and annually, along with the balance sheet
and the cash flow statement.
 Statements are prepared using the cash or accrual method of
accounting.
 Cash inflows like sales made by the company, interest received from
deposits, dividend received during the year etc., are shown as
revenue whereas cash outflows like salaries paid, insurance premium,
rent, advertising etc., are shown as expenses.
 Capital expenditure made by the company is not shown in this
statement. However, profit or loss made by selling of capital assets is
shown in profit and loss account.

4) Draw the flow chart of the Operating Cycle along with the cost details.
Ans.

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