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Good afternoon,
can someone help me with the following question for Chapter 3 Example 1 (part a)
i need to know how to to work out the “Cost (100%)” which will give the answer of 7.00. Tried several ways but can not seem to get round to calculate it
many thanks
LeeWith target costing, the target cost is the cost that will achieve the required profit.
In this question, the selling price will be $10.50, and the required profit is to be 50% of cost.
So….if you let the cost be $X, then the profit will be $0.5 x X, and so the selling price will be 1.5X
We know that the selling price will be $10.50, so 1.5X = 10.50.
If you divide both sides by 1.5, you get that X = $7.So that is the target cost. The company must find a way of getting the cost down to $7 or below if it is to achieve the required profitability.
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