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Target Costing

This topic has 1 reply, 2 voices, and was last updated 4 years ago by John Moffat.

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October 5, 2020 at 9:37 pm #587422
Carmen
Participant
- Topics: 11
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The following information has been collected about a new Product B.
Product B expected selling price per unit $15
Target profit 25% on cost
Current cost $12.60 per unit
What is the target cost gap for Product B?
A. $0.60
B. $0.90
C. $1.35
D. $2.40
Target profit (25% of cost = 20% of selling price)- I dont understand this bit- where are they getting the 20%?
= $3
Target cost: = $15 – $3
= $12
Cost gap = $12.60 – $12
= $0.60
October 6, 2020 at 9:23 am #587444
John Moffat
Keymaster
- Topics: 57
- Replies: 54483
The profit is 25% of cost.
So for every $100 cost, the profit will be $25 and therefore the selling price will be $125.
Putting it the other way round, for every $125 selling price the profit will be $25.
So the profit will be 25/125 of the selling price (which is 20%).
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