“Effectiveness of Target Costing on Pricing Tactics and

Profitability of Tailor Shops in Del Pilar Street, Cabanatuan

City”

A Research Study
Presented To
The College of Management and Accountancy
PHINMA Araullo University
Cabanatuan City, Nueva Ecija
In Partial Fulfillment of the Requirements for the Subject
Accounting Research

Researchers:
Agapito, Marliza
Baguisi, Rochelle R.
Balance, Johny V.
Barboza, Christel Meize B.
Co, Sharmaine R.
De Jesus, Julianne Claire
Inojosa, Mary Catherine Ace M.
Leonardo, Aubrey G.
Mariano, Sheila Marie M.
Menor, Jowena R.
Mercado, Jasmin D.

August 2024

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
i

APPROVAL SHEET

This research entitled “Effectiveness of Target Costing on

Pricing Tactics and Profitability of Tailor Shops in Del Pilar
Street, Cabanatuan City” prepared and submitted by Agapito,
Marliza C., Baguisi, Rochelle R., Balance, Johny V., Barboza,
Christel Meize B., Co, Sharmaine R., De Jesus, Julianne Claire,
Inojosa, Mary Catherine Ace M., Leonardo, Aubrey G., Mariano,
Sheila Marie M., Menor, Jowena R., Mercado, Jasmin D., in partial
fulfillment of the requirements for the degree, BACHELOR OF
SCIENCE IN MANAGEMENT ACCOUNTING has been examined and is
recommended for acceptance and approved for final defense.

Arnel A. Patricio
Research Adviser

Panel of Examiners
Approved by the committee of final defense with the rating
of __.
____________________________
Chairman

_______________________ _______________________
Member Member

Date of Final defense

Accepted and approved in partial fulfillment of the requirements
for the degree, Bachelor of Science in Management Accounting.

Aemee Joy C. Ignacio, CPA, MBA

Dean, College of Management and Accountancy

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
ii

ACKNOWLEDGEMENT

We, the researchers, would like to extend our deepest

acknowledgement to the following individuals for their valuable
contributions to this research endeavor.

First and foremost, we wish to express our greatest

gratitude to our all-mighty Creator for His guidance throughout
the entire process. Without Him we are nothing, as He is the
wellspring of our wisdom and knowledge, bestows upon us ample
strength and determination, and serves as the foundation of our
faith, energizing us. Heavenly father, thank you for everything
you have done for us.

Mr. Arnel A. Patricio, our research adviser, deserves our

heartfelt appreciation for her unwavering guidance, mentorship,
and belief in our abilities that have been instrumental in
shaping the path of this research and propelling them forward.
The expertise, patience, and unwavering support have been
valuable in overcoming challenges, improving the research
approach, and ensuring the significance of our findings.

We would also like to express our special thanks to the

panelists, whose critical insights, constructive suggestions, and
unwavering encouragement have played pivotal roles in
strengthening the overall research approach. Their expertise and
dedication have been invaluable in ensuring the quality of our
work.

Moreover, we are deeply indebted to our parents for

providing them financial support. It was essential in enabling us
to conduct our research effectively and pursue our academic
aspirations.
We also owe a great deal of gratitude to individuals who
generously authorize us to be able to conduct this study. Their
willingness to allow us researchers has been instrumental in the
success of the project and has significantly enriched our
understanding of the subject matter.

Also, we would like to express our sincerest gratitude to

the participants of this study, who willingly shared their time,
experiences, and perspective. Their openness and willingness to
engage in this research have been useful in enriching the
understanding of our research questions and the broader implications
of findings.

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
iii

We are also grateful to our classmates, for their support,

company, and shared knowledge throughout this research journey.
Their encouragement and keenness to assist have been instrumental
in maintaining motivation and perseverance spirit.

Finally, we would like to express genuine appreciation to

our families and friends for the unwavering love, support, and
understanding throughout this journey. Their belief in our
abilities has been a continual source of strength and motivation.

To all those who have contributed to this research, we

extend our sincerest gratitude. Your support and contributions
have been an integral part of this research journey, and we are
truly grateful for each one of you.

Thank you.

M.A.

R.R.B

J.V.B

C.B.B

S.R.C

J.D

M.M.I

A.G.L

S.M.M

J.R.M

J.D.M

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
iv

DEDICATION

Although the cover of this literature review solely bears

our names, it is imperative to express gratitude towards the
individuals whose unwavering support and profound influence have
shaped both the journey and outcome of this research study.

To those whose guidance has been a beacon of wisdom,

patience, and encouragement. Your expertise, insightful feedback,
and tireless dedication to the pursuit of knowledge have been
instrumental in molding this research into its final form.

To our family, whose boundless love and unwavering belief in

our capabilities have been the cornerstone of perseverance. Your
sacrifices and understanding have fueled our aspirations.

To our friends and classmates, whose support and shared

knowledge have been an instrument in maintaining motivation and
perseverance. Your diverse perspectives enriched the research
process and made the academic journey a shared experience.

We would also like to extend their dedication to the

countless individuals who participated in this study,
contributing their time, insights, and experiences. Your
willingness to be part of this research has been useful in
enriching the understanding of the research study. With the
utmost optimism, we, as researchers, anticipate that this study
will furnish you with the necessary guidance and motivation to
propel your business aspirations forward.

In addition, we would also like to express our dedication to

PHINMA Araullo University by cooperating to conduct the study.
Which allows us to showcase our expertise and abilities, while
also instilling important moral values that will guide us as
empowered individuals in our future endeavors.

M.A. R.R.B J.V.B

C.B.B. S.R.C. J.D

M.M.I. A.G.L. S.M.M

J.R.M. J.D.M

TABLE OF CONTENTS

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
v

TITLE PAGE

APPROVAL SHEET i

ACKNOWLEDGEMENT ii

DEDICATION iv

TABLE OF CONTENTS v

LIST OF TABLES vi

LIST OF FIGURES vi

CHAPTER 1

INTRODUCTION 1

Background of the Study

Review of Related Literature and Studies

Theoretical Framework

Conceptual Framework

Statement of the Problem

Hypotheses of the Study

Scope and Limitation

Significance of the Study

Definition of Terms

CHAPTER 2

RESEARCH METHODOLOGY

Research Design

Determination of Sample Size

Sampling Design and Technique

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
vi

Research Instrument

Administration of the Research Instrument

Data Gathering Procedure

Statistical Treatment

REFERENCES

APPENDICES

SURVEY FORM

Letter Of Request to Gather Information

Letter To Request to Gather Population Data

Curriculum Vitae

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
1

CHAPTER 1

INTRODUCTION

Background of the study

In a highly competitive business landscape like Cabanatuan

City, tailoring shop faced the challenges of balancing quality,

customer satisfaction, and profitability. Target costing is one

of the strategic instruments that has drawn interest because of

its capacity to enhance pricing strategies and boost

profitability. Target costing is a proactive method to cost

management that starts with figuring out what a product or

service's ideal price point is. It then works backward to make

sure that the cost of production is in line with this target,

guaranteeing profitability.

Target costing can have a big impact on price selections for

a tailor shop, which competes in a market where customization and

price sensitivity are important considerations. It can have a big

impact on pricing decisions for a tailor shop. A tailor shop can

maintain profitability while meeting customer expectations by

setting a competitive target price and then adjusting the cost

structure to meet this price. A tailor shop can guarantee its

profitability while satisfying customer expectations by

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
2

establishing a competitive target price and adjusting the cost

structure to match it.

The usefulness of target costing in the context of

Cabanatuan City tailoring enterprises is investigated in this

study. It attempts to evaluate the ways in which pricing

strategies, and total profitability are impacted by this cost

management approach. Tailored shops can achieve long-term

commercial success by better navigating the complexity of pricing

in a competitive market by comprehending the impact of target

costing.

REVIEW OF RELATED LITERATURE AND STUDIES

Target Costing

Target costing is a significant factor of cost management

since it allows for cost reduction and product improvement

without sacrificing product quality. Additionally, it results in

customer happiness, allowing businesses to maximize earnings and

sales. Studying the market and the dynamics of its forces

resulted in the establishment of this system (Wakefield, 2019;

Hattami et al., 2020;).

The target cost approach is a strategic methodology

contributing to reducing the cost during the production stages

from its beginning, taking into account achieving the quality

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
3

required by customers at the lowest possible cost and maintaining

the company's profits and competitive position (Narsaiah, 2020;

Stadtherr, 2021).

The main benefit of target costing is the determination of

the cost of the product as the basis for determining the selling

price so that it can achieve the desired profit target. According

to Kusumadewi in Wuysang & Pusung (2019), target costing is a

method of determining production costs first that must be issued

based on competitive market prices so that the company can

achieve the targeted profit. Based on some of these

understandings, it can be concluded that target costing is a

method of determining selling prices based on market analysis

which determines production costs first to reduce production

costs to be able to obtain the desired profit.

A research study conducted by Masadeh, A., Jrairah, T.,

Almasria, (2023). Target costing is an applicable idea that is in

keeping with rising competition and the fact that when supply

considerably outweighs demand, market forces have a stronger

impact on price levels (Al-HAshimi, 2020).

The cost of the product's disposal at the end of its useful

life is one of these parts, along with the purchase price,

running expenses, operational needs, maintenance and repair

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
4

costs, and operating costs. The goal of the target costing system

is to lower the cost of the product's life cycle (Hattami et al.,

2020; Airout et al., 2023).

The concept of target cost arose in Japan's sixties in the

last century. In contrast, the rarity of resources after the end

of World War II led to the appearance of the so-called target

cost, i.e., giving utmost importance to the product

characteristics at the lowest possible cost, either a financial

cost or raw materials' cost, besides it was found that this

method supports the company competitive position (Abdul Wahed,

2020).

The price is estimated based on studying the extent to which

consumers accept the product and the reaction of competitors to

the price at which the economic establishment offers its new

product (Faraji, and Sevim, 2019). The target cost approach

represents an integrated methodology that aims at reducing the

cost, starting from the initial phases before designing the

product and during the stages of the product life cycle,

including planning, developing, and preparing product models,

maintaining the quality thereof as a top priority. (Fouda, 2021)

defined it as a strategic tool that aims at reducing the cost

paid in designing and developing the product, considering not

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
5

reducing its quality, and contributing to achieving the company

strategy by reaching a stable competitive position in the market.

Profitability

Profitability is the amount of money a business makes and an

accounting measure that is employed to assess a business's

financial performance. It can be used to determine if a business

is effectively using its funds and resources efficiently. It also

indicates if the business can maintain its position in the

industry and grow even further. It is composed of two components,

the revenue and expenses. Therefore, if the business’s revenue

exceeds its expense it is profitable (Horton, 2023).

Profitability metrics are vital to tailoring businesses. They

should aim for a net profit margin between 10% and 15% for the

business to survive in the industry and have the ability to

reinvest in the business without affecting its financial

stability. Annual revenue increase of 10-20% can be an indicator

of having a progressive business development and acceptability in

the market for tailoring shops (Ryzhkov, 2024).

Kulwizira Lukanima (2023) asserts that the most significant

performance metric in use in business operations is

profitability. Profit maximization, while it does not indicate

value, is a sign of growth potential (retained earnings) and

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
6

investment returns (interest and dividends given to debtholders

and shareholders). Profitability is therefore the most

significant ratio in financial analysis since investors and other

consumers of financial statements typically pay more attention to

it than to other financial metrics. In order to illustrate the

significance of these measures for company valuation, this

chapter pays particular attention to and concentrates on the

major profitability ratios.

Cost Efficiency

Cost efficiency is viewed as importantly as it is because it

ensures your business is profitable and sustainable. If you have

poor cost-efficiency, you will end up spending more money than

you generate. A successful cost-efficient business reduces costs

and increases your profit margin.

It’s worth noting that cost efficiency is not just a

financial metric, as it is the connection between cost and

quality, and it ensures your organization can continue to satisfy

the needs of your customers. Without the quality factor in the

equation, this will be a major stepping off point for your

customers, leading to a revenue drop. (Callum Thompson, 2023)

Cost efficiency is an important and critical aspect that

influences the decision-making process. In cases of financial

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
7

uncertainty, this becomes more basic and significant. Cost

productivity and resources are critical for the organization to

control to guarantee its development's longevity. Cost efficiency

and other organizational success dimensions are based on external

and internal influences. The corporation will mainly affect its

capital costs through management, transparency of financial

condition, and corporate accountability, which is at the center

of the market climate within the company. (Narawish, Sharma,

Rajest, and Rajan, 2022)

One of the primary benefits of implementing target costing

in business is the ability to achieve cost efficiency. By setting

a target cost for a product or service early in the development

process, companies can identify areas where costs can be reduced

without compromising on quality. (Faster Capital, 2024)

Pricing Strategies

Pricing strategy is critical for the success of

international hotels. The price must be competitive, accurate,

and consistent ( Gao, Wang, and Fang, 2020). It is a flexible

variable that can be adjusted based on market demand states that

price determines the amount buyers are willing to pay for a

product or service based on their decision. Price is one of the

four P’s of the marketing mix that consumers consider before

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
8

making a purchase decision ( Kotler et al., 2022a). When

determining the pricing strategy, it is essential to consider

three critical factors, including the perception of the product’s

value by buyers, the number of buyers in the market, and their

price sensitivity (Azad and Subrahmanyam, 2022).

An effective pricing strategy can improve business

performance and lead to positive outcomes such as customer

satisfaction, loyalty, and customer retention, especially for

business entities ( Zakaria, Abdullah, and Ali, 2019). A pricing

strategy is an essential part of creating a sustainable

competitive advantage that helps businesses build customer

loyalty and increase satisfaction. An effective pricing strategy

gives a business an edge over competitors by delivering more

value to customers at lower cost or higher price, where

additional benefits and services are added. Therefore, pricing is

critical to business leadership. Moreover, companies use price

reductions as a strategy to increase or maintain their market

share. Customers often use price as an indicator of product

quality, especially when they have limited information to make a

judgment ( Rizov, 2019).

Abey (2019) indicated that one of the factors to consider is

the market demand. It measures the number of individuals who want

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
9

to purchase a good and can afford to purchase the good at a

certain price. Similarly, demand measures the quantity of product

that consumers are willing to buy and able to purchase at a given

value (Abey, 2019). Wasserman (2019) argued that consumers are

one of the factors to consider in pricing. The owner should

understand what their consumers want from their products and

services. This information will help them determine whether their

cost is correct, the amount of service or inclusions they should

be providing and, whether they are targeting the correct market.

Pricing strategy is an important part of a company’s

marketing mix as it directly affects the company’s profitability

and its competitiveness in the market. Before choosing an

appropriate pricing strategy for its product or service, a

company must consider several factors such as customer demand,

production costs, and competition ( Kotler et al., 2022a).

Businesses can use a variety of pricing strategies,

including cost-plus pricing, value-based pricing, and penetration

pricing. Cost-plus pricing involves adding a price to the cost of

producing a product to determine the selling price. On the other

hand, value-based pricing focuses on the perceived value of a

product in the eyes of customers rather than the cost of

production. Penetration pricing is often used to enter a new

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
10

market, where a company sets a low price to attract customers and

gain market share (Kotler et al., 2022).

In summary, pricing strategy plays a vital role in a

company’s marketing efforts, and a well-designed pricing strategy

can help a company achieve its sales and revenue targets.

However, market conditions, customer behavior and competition

should be considered when selecting an appropriate pricing

strategy for a product or service.

Theoretical Framework

The stages of product development and manufacturing are when

target costing is most frequently employed as a strategic

management technique. With an ultimate goal of achieving targeted

profit margins, it focuses on cost management with a concern on

market conditions, cost efficiency, and competition. Target

costing's impact on pricing strategies and an organization's

total profitability is the framework's main goal.

Target Costing: An Overview

Setting a target price for a product based on market

conditions and consumer expectations is the first step in target

costing. The allowed cost, which acts as a guide for the design

and production process, is obtained by deducting the intended

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
11

profit margin from this target price. In order to ensure

profitability at the anticipated market price, the basic idea is

to create products that satisfy both client expectations and cost

restrictions.

Pricing Tactics

Pricing tactics refer to the different ways that companies

set the prices for their goods, such as penetration pricing,

value-based pricing, cost-plus pricing, and skimming pricing.

Market demand, competitiveness, product lifespan, and cost

structure are some of the variables that affect pricing strategy

selection. Target costing has an impact on these choices since it

makes sure the product is priced competitively while still

achieving profitability targets.

Profitability and Cost Management

Any business's ultimate goal is profitability, which is

directly related to efficient cost control. Target costing

ensures profitability by establishing cost constraints early in

the product development process. Compared to typical methods

that concentrate on cost reduction post-production, this

proactive approach to cost management is different.

Tailor Shop Profile: An Overview

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
12

The tailor shop's operations are characterized by a

cohesive workforce, supported by several years of experience

in the industry. This stability is enhanced by the

utilization of essential equipment, enabling the efficient

production of tailored products. The shop’s workforce,

experience, and tools collectively contribute to its ability

to meet customer demands and maintain quality standards,

ensuring consistent delivery of products that align with the

business's goals and market expectations.

Number of employees: The number of employees directly impacts the

total labor cost. By knowing the number of employees, a company

can estimate wages, salaries, benefits, and other associated

costs. These figures are essential to determine whether the

product can be produced within the target cost.

Years of Operation: A business that has been in operation for

many years is likely to have developed efficient processes, which

can lower production costs. This experience can make it easier to

meet target costs, as the company may have streamlined

operations, optimized supply chains, and reduced waste over time.

A well-established business might have a strong market position

and brand reputation, allowing it to command higher prices or

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
13

negotiate better terms with supplier. This can give the business

more flexibility ion setting target costs, as it may have more

room to manage margins.

Equipment used to create products: Understanding the equipment

used to create products is essential to target costing

because it directly impacts production costs, efficiency,

and overall cost management. High-quality equipment can

reduce defects and rework costs, which are critical for

keeping production within the target cost. Recognizing the

equipment helps in setting realistic target costs by

allowing the company to better estimate and control

production-related expenses

Empirical Evidence

According to empirical research, businesses that use target

costing are frequently more successful at keeping their pricing

strategies profitable and in line with consumer expectations.

Compared to businesses that use traditional costing methods,

these businesses may better control expenses during the product

development stage, which results in more competitive pricing and

bigger profit margins.

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
14

Conclusion

Target costing is a powerful technique that shapes pricing

strategies by guaranteeing that goods are made to satisfy

consumer demands while being profitable. Its efficacy stems from

its capacity to harmonize strategic cost management and product

creation, improving financial performance as well as competitive

positioning. But for implementation to be successful, there needs

to be tight collaboration between different organizational

functions and a thorough understanding of market dynamics.

Conceptual Framework

INDEPENDENT VARIABLE DEPENDENT VARIABLE

Profile of the Tailor Shop

a. Number of employee
b. Years of operation
c. Equipment used to To present innovative
create products strategies that
enhance their
profitability and
Assessment of integrated competitiveness amidst
target costing pressures from mass-
produced clothing.
a. Pricing strategies
BRGY.b. Profitability
BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952

c. Cost efficiency
15

Figure 1: Research Paradigm

Figure 1 shows the independent variable of this study. The

independent variable shows the profile of the tailor shop which are

number of employee, years of operation, and equipment used to

create products; integrated target costing which are pricing

strategies, profitability, and cost efficiency. While the dependent

variable shows the innovative strategies that enhance their

profitability and competitiveness amidst pressures from mass-

produced clothing in Del Pilar Street, Cabanatuan City.

Statement of the Problem

The effectiveness of target costing on pricing tactics and the

profitability of selected tailor shops in Cabanatuan City are

under examination. Target costing, as a strategic management

tool, aims to manage costs early in the product lifecycle to

achieve the desired profit margin.

Specifically, this study sought to answer the following

questions.

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
16

1. How does the profile of the Tailor Shop be described in terms

of:

1.1. Number of employees;

1.2 Years of operation; and

1.3 Equipment used to create products

2. Effectiveness of integrated target costing in terms of;

2.1 Pricing strategies;

2.2 Profitability; and

2.3 Cost efficiency

3. Is there a significant influence between years of operation

and Profitability of selected tailor shops?

4. Does the type and quality of equipment used by tailor shops

influence the effectiveness of integrated target costing in terms

of cost efficiency?

5. What course of actions should Tailor shops do in order to

utilize the target costing effectively?

Hypotheses of the Study

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
17

This study explores how the systematic approach to target costing

influences cost management, pricing decisions, and overall

financial performance within a specific market condition.

To determine how the tailoring businesses in Cabanatuan City

achieve a favorable profit margin using Target Costing Methods.

Thus, the following hypothesis is proposed:

Ho1: There is no significant relationship between target costing

and selecting pricing strategies.

Ho2: There is no significant relationship between pricing tactics

and Profitability of tailor shops in Cabanatuan City.

Ho3: There is no significant relationship between years of

operation and profitability.

Ho4: The type and quality of equipment used by a tailor shop do

not significantly influence the effectiveness of integrated

target costing in terms of cost efficiency.

Scope and Limitation

The primary focused of this study is to analyze the

effectiveness of Target Costing on Pricing Tactics and

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
18

Profitability of Tailor Shops in Del Pilar Street, Cabanatuan

City. Furthermore, to assess the cost efficiency.

The feedbacks and suggestions made by the respondents for

the year 2024 are the only ones included in this study. This

implies that the conclusions drawn from this study could not be

applicable in other time periods or situations. More

investigation is required to examine the profitability and

efficacy of targeted costs in pricing strategies across various

contexts and time periods in order to guarantee the

generalizability of the results.

To conduct this research, a comprehensive questionnaire was

developed to collect data from tailor shops along Del Pilar

Street in Cabanatuan City. The questionnaire aimed to assess the

influence of target costing on pricing strategies and

profitability. By surveying these specific tailor shops, the

study aims to manage costs early in the product lifecycle to

achieve the desired profit margin with implementing target

costing in this particular locale.

Significance of the Study

This study explores the effectiveness of target costing on

pricing tactics and profitability in tailor shops on Del Pilar

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
19

Street, Cabanatuan City. The findings are anticipated to benefit

the following;

Tailor Shop Owners – This research provides insights into how

target costing can help tailor shops set competitive prices while

maximizing profitability. It offers practical strategies for

managing costs and enhancing financial performance.

Customers – Understanding how tailor shops use target costing to

price their services can help customers make informed decisions,

knowing they are getting value for their money and how pricing

affects service quality.

Local Business Community – The study will shed light on best

practices in cost management and pricing strategies, offering

valuable lessons for other local businesses looking to improve

their financial outcomes and market competitiveness.

Students – This study offers practical insights into target

costing and its implications for pricing and profitability,

enhancing students' understanding of business management and cost

control principles.

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
20

Future Researchers – The study provides a foundation for further

research on target costing and its effects in different contexts,

encouraging more in-depth exploration of cost management

practices and their impact on various industries.

Definition of Terms

To provides a common frame of reference and to ensure an

understanding of the contents of this study, the following are

hereby defined technically and operationally:

Target Costing - Target costing is a pricing strategy that is

mostly employed by businesses looking to launch new goods at a

particular price range. Setting a target price based on what

consumers are ready to pay is the initial phase in the process.

From there, the company works backward to ascertain the highest

production costs it can bear while maintaining the targeted

profit margin. Target costing's primary objective is to make sure

the product can be produced at a price that allows for a

competitive pricing and still yields the intended profit. This

customer-focused strategy makes sure that the finished product

satisfies market demands for both price and quality.

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
21

Pricing Tactics - Pricing tactics are certain plans or techniques

that companies employ to determine the cost of their goods and

services in order to meet a range of organizational goals. Price

techniques, as opposed to longer-term, more comprehensive price

strategies, are frequently reactive measures used to address

particular market circumstances, rivals' moves, or consumer

behavior. They can be changed more regularly to accommodate

evolving conditions.

Profitability - Profitability refers to a company's ability to

generate profit from its operations. It assesses how successfully

a business may generate profits in relation to its outlays and

other costs incurred during a given time frame. As it

demonstrates a company's ability to maintain and expand its

operations throughout time, profitability is a crucial sign of a

company's financial health and success. Because it affects a

company's capacity to pay dividends to shareholders, reinvest in

the firm, and weather economic downturns, profitability is

essential to its long-term success.

Cost Efficiency - Cost efficiency refers to the ability of a

business or organization to achieve the maximum output or benefit

at the lowest possible cost. It entails making the best use of

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
22

available resources, including capital, labor, and materials, in

order to enable the company to manufacture products or render

services at as little expense as possible. Reducing waste,

cutting back on needless spending, and increasing profitability

without sacrificing quality is the aim of cost efficiency.

Penetration Pricing - Penetration pricing is a pricing strategy

that is used to quickly gain market share by setting an initially

low price to entice customers to purchase. New competitors

typically employ this price strategy. Predatory pricing is an

extreme variation of penetration pricing.

Value-Based Pricing - Value-based pricing is a pricing approach

in which the price of a good or service is determined mostly by

the customer's assessment of the value it offers, not by the cost

of production or the prices of rivals. This method takes into

account the price a consumer is prepared to pay in exchange for

the advantages of the good or service.

Cost-Plus Pricing - A simple pricing method known as "cost-plus

pricing" sets a selling price for a good or service by adding a

predetermined markup to its acquisition or manufacturing costs.

This strategy guarantees a profit margin and makes sure all

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
23

expenses are met. Industries including manufacturing, retail, and

construction have steady, predictable costs, making them good

candidates for cost-plus pricing. Even while it guarantees that

all expenses are met, if customer value or aggressive pricing

tactics are overlooked, profit potential may not always be

maximized.

Skimming Pricing - Skimming pricing is a tactic used by

businesses to target customers who are prepared to pay more to be

among the first to acquire or experience a new or revolutionary

product. They do this by setting a high initial price. To draw in

more price-conscious clients, the price is progressively reduced

over time. Using this strategy, the business is able to optimize

revenue from various market segments at various points in the

product's life cycle. It assists businesses in maximizing the

early demand before lowering costs to appeal to a larger consumer

base.

Profit margin - A profit margin shows what proportion of revenue

is left over after expenses have been subtracted. It evaluates a

company's profitability and is frequently used to determine how

effectively it is managed and how well it keeps costs in check in

relation to sales. Management, investors, and analysts use profit

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
24

margins to evaluate profitability across businesses or

industries, and they are essential for assessing a company's

financial health.

Cost constraints - The term "cost constraints" describes

restrictions or limitations on the total amount of money that can

be allocated to a project, product, or commercial venture.

Budgeting, financial planning, and cost management all depend on

these limitations, which can affect many facets of decision-

making and resource allocation. Budgetary restrictions are a

typical factor in both personal and commercial finance. By

assisting in making sure that expenditure is in line with both

financial resources and strategic goals, they eventually promote

long-term and efficient financial management.

Empirical Research - A study methodology known as empirical

research is one that does not rely solely on theory or belief,

but rather on observable and measurable occurrences. In order to

obtain knowledge and make conclusions, it entails gathering data

through experiments or direct or indirect observation. Empirical

evidence, or data gathered from experiments or sensory

experience, is the basis of this methodology.

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
25

CHAPTER 2

RESEARCH METHODOLOGY

This chapter discussed the research methodologies used

in the study. It includes the research design, respondents

of the study, research locale, research instruments, and the

data gathering procedures.

Research Design

The researchers used the non- experimental research design,

which is a combination in descriptive and correlational method.

Descriptive research design focuses on gathering data to

make accurate prediction, it can be done by using survey

questions (Qualtrics, 2024). Correlational research design is

used to determine the relationship between variables, in non-

experimental method there is no manipulation or exposure to

additional settings; researchers simply study variables as they

behave in their native environments (Eckel, 2024). The current

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
26

study's descriptive correlational research design was suitable

for explaining and testing the connection between target costing,

pricing tactics and profitability.

Determination of Sample Size

The research was conducted in Cabanatuan City, particularly

focusing on tailor shops operating in M.H. Del Pilar Street. This

locale was selected due to its pricing tactics and profitability,

which are directly aligned with the study's objective of

“Effectiveness of Target Costing on Pricing Tactics and

Profitability of Tailor Shops”.

M.H. Del Pilar Street is known for having many businesses

around it, people also come because it is close to the public

market, making it an ideal setting for exploring Pricing Tactics

and Profitability. This location was chosen to provide a thorough

analysis of Target Costing in the tailoring sector.

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
27

Image 1: Locale of the Study

Respondents of the Study

To assess how well target costing influences pricing tactics

and profitability in order to mold the respondents' performance,

the respondents of the study are the tailor shops' owners in Del

Pilar Street, Cabanatuan City.

The respondents of the study are based on the number of

stores located in the area. It contains all the tailor shops in

M.H. Del Pilar Street, specifically in SMI. Allowing the

researchers to ensure an accurate set of data.

Sampling Design and Technique

Research Instrument

The researchers will conduct a survey to the tailor shops

owners in Del Pilar Street, Cabanatuan City through the use of

questionnaires.

Survey-Questionnaires will be used to collect relevant

information in measuring the effectiveness of target costing on

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
28

pricing tactics and the profitability of tailor shops in Del

Pilar Street, Cabanatuan City.

Administration of Research Instrument

As stated at the beginning of the survey, a cover letter

will be sent by the researchers requesting consent from the

respondents to be the topic of the study. Relevant data is

collected from respondents' responses using survey questionnaire.

Each participant will receive information about the purpose of

the study, the structure of the survey, and the necessary

instructions for filling it out. They can freely answer the

questions because they will know that their personal information

won't be revealed. The participants were given enough time to

finish answering the survey questions.

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
29

Letter of Request to Gather Information

August 15, 2024

Dear (Mr. /Ms. /Mrs.),

We, the third-year students from the College of Management and

Accountancy at PHINMA Araullo University, are writing this letter
to formally inform you that we are currently conducting our study
entitled "“Effectiveness of Target Costing on Pricing Tactics and
Profitability of Tailor Shops in Del Pilar Street, Cabanatuan
City” as part of our academic requirements in Accounting Research
Methods.

In connection with our study, we would like to formally request

your office to kindly allow the researchers to conduct a survey
with the registered tailor shops in Del Pilar Street, Cabanatuan
City who are actively operating their businesses as they will
serve as the respondents of our study. Rest assured that the

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
30

information obtained will be kept confidential and solely for

academic purposes only.

We appreciate your kind consideration and approval of this

request. For any questions you may have regarding this matter,
kindly contact us through my email [email protected] or
mobile number 0965-550- 1994.

Thank you and God Bless!

Sincerely,

Agapito, Marliza Riona C.

Baguisi, Rochelle R.
Balance, Johny V.
Barboza, Christel Meize B.
Co, Sharmaine R.
De Jesus, Julianne Claire
Inojosa, Mary Catherine Ace M.
Leonardo, Aubrey G.
Mariano, Sheila Marie M.
Menor, Jowena R.
Mercado, Jasmin D.
The Researchers
PHINMA Araullo University

Noted by:

ARNEL A. PATRICIO

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
31

Research Adviser
PHINMA Araullo University

Approved by:

AEMEE JOY C. IGNACIO, CPA, MBA

Dean, College of Management and Accountancy
PHINMA Araullo University

Letter of Request to Gather Population Data

August 15, 2024

To whom it may concern,

We are students of PHINMA Araullo University, who would like to

conduct research about "Effectiveness of Target Costing on
Pricing Tactics and Profitability of Tailor Shops in Del Pilar,
Cabanatuan City" would want to ask your assistance with concern
of the exact number of Tailor Shops registered in Del Pilar
Street, Cabanatuan City.
Your help would be greatly appreciated, as this would help us to
accurately perform our study.

Sincerely,

Jowena R. Menor

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952
32

Researcher
PHINMA Araullo University

Noted by:

ARNEL A. PATRICIO
Research Adviser
PHINMA Araullo University

Approved by:

AEMEE JOY C. IGNACIO, CPA, MBA

Dean, College of Management and Accountancy
PHINMA Araullo University

BRGY. BITAS, MAHARLIKA HIGHWAY, CABANATUAN CITY, NUEVA ECIJA 3100 Phone No. (044) 463. 0952