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Dear sir ,
I found this question on mock exam, my question is, how the 3/4 comes from ?target selling price $20 per unit
Target mark-up on cost 1/3
Estimated production cost $16 per unitWhat is the target cost gap for this product?
Target cost =3/4*20=$15
Therefore cost gap =16-15=$1thank you in advance
For every $3 cost the profit will be $1 and therefore the selling price will be $4.
Putting it the other way round, for every $4 selling price the cost will be $3.
Therefore if the selling price is $20, then the cost will be 3/4 x $20 = $15
(and it checks because the mark-up will be 1/3 x $15 = $5, and therefore the selling price will be 15 + 5 = $20.)
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