Target return pricing is a strategy where a company sets prices to cover all costs and which of the following?

• A. Maximize total sales volume
• B. Achieve a specified profit or return on investment
• C. Match competitors' prices
• D. Minimize production costs

Answer: (B)

Verified step by step guidance

1. Understand the concept of target return pricing: This pricing strategy involves setting a price that ensures all costs are covered while achieving a specific profit or return on investment (ROI). It is commonly used by companies aiming to meet financial goals.
2. Identify the key components of target return pricing: These include total costs (fixed and variable), desired profit or ROI, and expected sales volume. The formula for target return pricing can be expressed as: $P=\frac{C+T}{Q}$, where P is the price per unit, C is total costs, T is the target profit, and Q is the expected sales volume.
3. Analyze the options provided in the problem: The correct answer is 'Achieve a specified profit or return on investment,' as this aligns with the goal of target return pricing. The other options, such as maximizing sales volume, matching competitors' prices, or minimizing production costs, are not the primary focus of this strategy.
4. Relate the concept to practical application: Companies use target return pricing to ensure financial stability and meet investor expectations. This strategy is particularly useful in industries with predictable costs and sales volumes.
5. Summarize the reasoning: The essence of target return pricing is to set a price that guarantees covering all costs while achieving a predetermined profit or ROI. This approach is strategic and goal-oriented, making it distinct from other pricing strategies like competitive pricing or cost minimization.