ACCA PM · Guided practice (Show me how)
Chapter 2: Target costing
Target costing: from a required margin and from a required ROI
(a) Packard plc are considering whether or not to launch a new product. The sales department have determined that a realistic selling price will be $20 per unit. Packard have a requirement that all products generate a gross profit of 40% of selling price. Calculate the target cost.
(b) Hewlett plc is about to launch a new product on which it requires a pre-tax ROI of 30% p.a. Buildings and equipment needed for production will cost $5,000,000. The expected sales are 40,000 units p.a. at a selling price of $67.50 p.u. Calculate the target cost.
(a) Packard: target cost from a required margin
Calculate Packard plc's required profit per unit and target cost per unit.
(b) Hewlett: target cost from a required ROI
Calculate Hewlett plc's annual target return, sales revenue and target cost per unit.
Opening this exercise…