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Hi,
In choosing the ways to close the cost gap of the product is it necessarily that we will choose something that will not affect the quality i.e we should maintain the quality.
like in following question,
Which of the following would be appropriate ways for Helot Co to close a cost gap?
(1) Buy cheaper, lower grade plastic for the game discs and cases
(2) Using standard components wherever possible in production
(3) Employ more trainee game designers on lower salaries
(4) Use the company’s own online gaming websites for marketingA 1, 2 and 3
B 1, 3 and 4
C 2 and 4
D 2 and 3 onlythe correct answer is
C
Using more standardised components and using its own websites for marketing will reduce processing and marketing costs.
Using cheaper materials and trainee designers will reduce costs but could impact the quality and customer perception of the product which would impact the target price.Thanks,
Which of the following would be appropriate ways for Helot Co to close a cost gap?
So what makes the product more economically but same or similar quality
(1) Buy cheaper, lower grade plastic for the game discs and cases – NO poorer quality
(2) Using standard components wherever possible in production – YES std can save the company money
(3) Employ more trainee game designers on lower salaries – NO poorer quality production
(4) Use the company’s own online gaming websites for marketing – YES reduce the cost of marketingHi,
But in another example the tuition provider use the other way
S Company is a manufacturer of multiple products and uses target costing. It has been noted that Product P currently has a target cost gap and the company wishes to close this gap.
Which of the following may be used to close the target cost gap for product P?
A. Use overtime to complete work ahead of schedule
B. Substitute current raw materials with cheaper versions
C. Raise the selling price of P
D. Negotiate cheaper rent for S Company’s premisesfor me I would chose D
but the correct answer chosen by another site
10. BI suspect if that is the correct answer.
Thanks
I think the following options may be used to close the target cost gap for product P:
B. Substitute current raw materials with cheaper versions – this would close the gap but could affect quality and therefore increase cost in the LT
D. Negotiate cheaper rent for S Company’s premises this would close the gap and not affect quality.
But then again you can argue that D is wrong as fixed costs are not directly relevant when closing a target cost gap. The target cost gap primarily focuses on reducing the direct or variable costs of a product. Fixed costs, such as rent or salaries, are not easily adjustable in the short term and may not directly impact the target cost gap.
Instead, we say reducing the target cost gap typically involves measures such as substituting materials with cheaper alternatives or implementing cost reduction initiatives.
All in all I think this question is unclear!
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