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Target Selling Price $20 per unit
Target profit margin 30%
Estimated production cost $16 per UnitWhat is the target cost gap?
The answer is $2! How did they get this?
I assume that you have watched the lectures, in which case you will know that the target cost is the difference between the estimated actual cost and the target cost.
The target cost is 20 – 30% = $14.
The estimated actual cost is $16.
You can calculate the cost gap yourself 🙂
When I see it now, I don’t why in the world it was confusing me so much, as up until now I had understood Target cost gaps. Thanks very much John for all your help!
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