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A company is planning to make a product. The demand for the product is upto 5 years. A company sells at $10.5 p.u. They expect to sell 2000 units in 1st year and 12000 units in upcoming 4 years.
A company wishes to get 50% markup on cost.
It is estimated lifetime cost of product are as follows:manufacturing cost: $6 p.u
design cost: $60,000
End of life cost: $30,000calculate:
the target cost for the product
the lifecycle cost per unit and determine whether or not product is worth makingIt has been further estimated that if the design cost would be further added ($20,000) then manufacturing cost would be reduced.
if additional design cost are to be spent on then calculate the maximum manufacturing cost per unit that could be allowed if the company is to achieve the required markup.
Please solve this question.
This question is from our free lecture notes. The answer are in the lecture notes (as are answers to all of the examples – just look at the contents page to find them!!
However, you should not be using the lecture notes if you are not watching the lectures. In the lectures I work through the example and explain and expand on the notes – they are lecture notes, not a study text !
If you are not watching the lectures then you must study from a Study Text from one of the ACCA approved publishers to have a chance of passing the exam.
Workings from Example in lectures
Cost 100% 7.00
+ Markup 50% 3.50
= S Price 150% 10.50Markup
How I understand it;Cost 100% 10.5 If 100%, then no need to do any working here
Markup 50% 5.25 50%, therefore 50% of 10.50
SP 150% 15.75 150%, and therefore 150%, of the 10.50Margin
How I understand it;Cost 50% 5.25
Markup 50% 5.25
SP 100% 10.50Hi Mr Moffat
Many thanks for your support to us students, it is immensely appreciated. I am confused as to how the markup and margin has been calculated in the example given in the target costing.
I have written above my computation as to how I understand it and have compared it to the working example in the lectures and am still confused kindly assist me to clarify and to understand it properly.Once again many thanks for all your support
Have you actually watched the lectures? It is pointless to use the lecture notes if you are not watching the lectures that go with them.
The question says that the mark-up is 50% of cost.
In your workings, 50% of 5.25 is not 5.25!!!For every 100 cost, the profit is 50% x 100 = 50, and therefore the selling price is 100 + 50 = 150.
So for every 150 selling price, the cost is 100.
Therefore if the selling price is 10.50, the cost is 100/150 x 10.50 = 7.00.
(And is obviously checks. The profit is 50% of cost, so 50% x 7.00 = 3.50)This is revision of Paper F3 and it will therefore help you to watch the free Paper F3 lecture on mark-ups and margins.
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