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PM Chapter 2 Questions Target costing

 

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    • The target cost is calculated from the selling price so as to give a mark-up of 20% on cost.

      So the target cost is 100/120 x 600 = 500.

      The actual cost is only relevant afterwards in order to compare with the target cost so as to arrive at the cost gap.

      Did you watch the lecture before attempting the test?

  5. Sir please I want to ask if this working is correct even thou I arrived with the same answer.

    SP = 600
    And the required profit margin is 20% on cost . THIS MEANS that : COST + 20%
    Where 20% = 0.2 therefore
    In other to get SELLING PRICE this should be COST it self which is 100% + mark-up cost which is 20%

    Therefore SP=cost x 120% and by finding the cost, Make COST the subject thin will become
    COST = SP/ 120%
    = 600/120%
    = 500
    Cost Gap = 520 – 500
    = 20

  6. Hello, Sir please is the below correct?
    Seems figures are not matching but landed correct answer somehow

    SP= 600
    Cost= 20%

    600×20% = $120

    Profit is 20/120 x 600 = 100

    Cost gap is 120-100= $20

    • The fact it matches is a complete coincidence because your figures to not make sense.

      The required mark-up is 20% of cost. Therefore the target cost to achieve this mark-up is 100/120 x 600 = 500.

      The expected actual cost is 520.

      Therefore the cost gap is 520 – 500 = 20.

    • Great 🙂

      (But do make sure that you buy a Revision Kit from one of the ACCA approved publishers. Our tests are just meant to be quick checks after each chapter, but it is vital that you practice lots and lots of exam standard questions. The Revision Kits are full of both past exam and other exam standard questions in the various formats that they are asked in the exam.)

  13. I think there is a mistake in one of the questions. The question says to calculate the target cost, but in the answer it is calculated the target cost gap by 300-250=50. Is 50 the target cost? I don’t think so. It is the question about 1.250.000 investment

      • true,but if you look at the option,it is logical to think that we were asked to find cost gap. just a cliche trick in exam

      • i just read the comments below and actually they really asked us to find target cost ,not target cost gap. you may think to work on it again. As the target cost will be the difference between actual cost and target cost. but in this question and workings, it showed us on how to find a target cost. Correct me if im wrong john

      • The target cost is not the difference between the actual cost and the target cost. The difference is the cost gap. The question specifically asks for the target cost – it is worded correctly and the answer is correct.

  18. Good Day.

    I have attempted and finished the 1st set of questions, but cannot seem to be able to move on to the next set of questions.
    Could there possibly be a technical problem going on?

    • SP=cost + profit(P)……(i)
      let cost be X……(ii)
      from the qn. profit is 20%of cost
      so P=20%X……(iii)
      then put (ii) & (iii) into (i)
      Note SP=600 from the question
      thus 600=X+20%X. find X
      X=$520
      so the diff btn $520 & $500 is the gap

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