Hi Sir, thank you for the lecture. I’m still quite confused. I just wanted to understand how you would calculate the target profit (step 2 in the target costing calculation).

I get the selling price is $10.50 step 2? required profit step 3 target cost $7

Lectures are great: short, but very clear and informative. Thank you very much for your time and effort these informative lectures were the reason to select ACCA rather than CPA. Thank you sir thank you so much

In part C) I calculated it using your method but also tried another method that didn’t work and I was hoping you could possibly spot the error. I took the increase of 20,000 and divided by the number of units produced. Giving 20,000/50,000 = 0.4. This should equate to the increase in cost per unit. Thus to compensate you take the 0.4 from 7 to give $6.6 pu. However it is clearly wrong. Why is this?

The question is asking the maximum manufacturing cost per unit. You have to deduct design and end life cost from 7 as well. It will be 7-0.4-1.2-0.6=4.8.

“calculate the maximum manufacturing cost per unit that could be allowed if the company is to achieve the required mark-up”

in b) we saw that 6 was not acceptable as manufacturing cost, we need to find the new one. with a target cost per unit maximum of 7 to be acceptable : 7 * 50 000 = 350 000

So in the previous video of target costing lecture 1. in the example you used the formula (25/125)*50 where 25 represents the mark-up. but in this video instead of using the same formula you used (100/150)*10.5 in which the 100 represents the cost. And so I would like to know which to use.

And thank you for making these videos they are a big help.

But it is the same arithmetic except that in the first case we want to know what the mark up was whereas in the second case we want to know what the cost is!!! Had we want to know the cost in the first example we would have multiplied by 100/125

Good evening sir. I think I worked this out the long way but I arrived at the same answer. What I did intially is =>$390,000+$20,000 = $410,000÷50,000 =8.2 Then $8.20- $7.00 = $1.20 ? $1.20 * 50,000 =$60,000

Over the 5 years they sell a total of 50,000 units (4 years of 12,000, plus 1 year of 2,000). The manufacturing cost is $6 per unit, so the total cost is 50,000 x $6 = $300,000.

We use cookies to improve your experience on our site and to show you relevant advertising. To find out more, read our updated privacy policy and cookie policy.OkRead more

binidire says

Thank you.

John Moffat says

You are welcome 🙂

tasnimrxo says

Hi Sir, thank you for the lecture. I’m still quite confused. I just wanted to understand how you would calculate the target profit (step 2 in the target costing calculation).

I get the selling price is $10.50

step 2? required profit

step 3 target cost $7

without the short cut example in video please.

tasnimrxo says

Ignore me I understand now

John Moffat says

I am pleased that you now understand 🙂

7fsa says

Lectures are great: short, but very clear and informative.

Thank you very much for your time and effort these informative lectures were the reason to select ACCA rather than CPA.

Thank you sir thank you so much

John Moffat says

Thank you for your comment 🙂

adch111 says

Hi,

In part C) I calculated it using your method but also tried another method that didn’t work and I was hoping you could possibly spot the error.

I took the increase of 20,000 and divided by the number of units produced. Giving 20,000/50,000 = 0.4. This should equate to the increase in cost per unit. Thus to compensate you take the 0.4 from 7 to give $6.6 pu. However it is clearly wrong. Why is this?

thanks

xiaoyueyue says

The question is asking the maximum manufacturing cost per unit. You have to deduct design and end life cost from 7 as well. It will be 7-0.4-1.2-0.6=4.8.

muddyzaahid says

Hi John,

for question C, manufacturing costs had a cost per unit of $6 and so why have you used the target cost of $7 to get the total cost?

lazyanimal says

“calculate the maximum manufacturing cost per unit that could be allowed if the company is to achieve the required mark-up”

in b) we saw that 6 was not acceptable as manufacturing cost, we need to find the new one.

with a target cost per unit maximum of 7 to be acceptable : 7 * 50 000 = 350 000

kyolbarsova67054 says

Lectures are great: short, but very clear and informative.

Thank you very much for your time and effort.

John Moffat says

Thank you for your comment 🙂

foul says

Hello John,

So in the previous video of target costing lecture 1. in the example you used the formula (25/125)*50 where 25 represents the mark-up. but in this video instead of using the same formula you used (100/150)*10.5 in which the 100 represents the cost. And so I would like to know which to use.

And thank you for making these videos they are a big help.

John Moffat says

But it is the same arithmetic except that in the first case we want to know what the mark up was whereas in the second case we want to know what the cost is!!!

Had we want to know the cost in the first example we would have multiplied by 100/125

foul says

thank you for the clarification, and the swift reply.

santina96 says

Good evening sir. I think I worked this out the long way but I arrived at the same answer.

What I did intially is

=>$390,000+$20,000

= $410,000÷50,000

=8.2

Then $8.20- $7.00 = $1.20

? $1.20 * 50,000

=$60,000

Which I then subtracted from the $300,000.

But overall I love your method more.

Thank you..

John Moffat says

What matter is ending up with the right answer – the method you use does not matter 🙂

muddyzaahid says

Good day,

can you please explain how you got $300,000 for your method.

Thank you in advance

John Moffat says

Over the 5 years they sell a total of 50,000 units (4 years of 12,000, plus 1 year of 2,000). The manufacturing cost is $6 per unit, so the total cost is 50,000 x $6 = $300,000.

elenaakhra says

Thank you very much dear Tutor. And thank you very much for your resourse.

John Moffat says

Thank you for your comment 🙂

John Moffat says

mami9561: You are welcome, and thank you for your comment 🙂

mami9561 says

Thanks a lot Mr. Moffat for your explanation and it’s much appreciated..

joanaana says

Hello John.

Firs of all thanks for your lectures.

In this exercise I don’t understand c point why extra in manufacturing is 20000.

Thanks

John Moffat says

If I understand your question correctly, it is because the question says that they would have to spend and extra $20,000 on design.

(I assume that you have downloaded the free lecture notes that are needed for the lectures)

amankaur says

Gaah ! I wish I found out about opentuition earlier! I don’t know why employers keep you guys a secret, much better than in class courses!

John Moffat says

Maybe employers fo not know about us – please do tell people 🙂

And thanks a lot for your comment 🙂

alie2018 says

Thanks John.

John Moffat says

You are welcome 🙂