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September 21, 2020 at 2:53 pm
in example 2, what is the assumption that the 30% of 5M is the profit objective when the problem did not say so?
John Moffat says
September 22, 2020 at 8:37 am
But the question does say so!! It says that a return on investment of 30% is required.
June 5, 2020 at 7:45 am
June 5, 2020 at 9:41 am
You are welcome 🙂
May 22, 2020 at 5:13 am
therefore for every 100 of cost the Selling price is 125, i.e, 100/125*50=$40 and therefore target cost is $50-$40 = $10 is that correct?
May 22, 2020 at 8:35 am
I don’t know which example you are referring to. However on your figures, if they want a mark-up of 25% on cost and if the selling price is $50, then the target cost is $40 (not $10. $10 is the profit they want to make).
May 10, 2020 at 5:11 pm
Please sir I NEED TO KNOW HOW TO SOLVE THIS QUESTION the selling price of product ZIGMA is set to be $250 for each unit and sales for the coming year are expected to be 500 units if the company requires a return of 15%in the coming year on its investment of $250000in product ZIGMA the target cost for the coming year is how do i proceed with this question the choices are 145 155 165 175
May 12, 2020 at 4:47 am
Targeted revenue is 500 x $250 = $125000 The required ROI 15% from $ 250000 is $37500 Targeted cost is $125000-$37500 = $87500 Targeted cost per unit = $87500/500 units = $175
September 20, 2019 at 11:29 am
In Target Costing, you gave example of calculating TC when profit was 25% of/on Cost and you calculated by 25/125*50= $10.
Why here we are calculating by 100/150*10.5 = $7 ? Why not same as 50/150 * 10.50 = $3.5 TC ?
January 30, 2020 at 3:12 pm
You can also say,
TC= (125/100 )x = 50 TC= (100/125)50 = 40
February 13, 2020 at 4:01 pm
Why would we divide 50 by 150? The $50 is the realistic selling price. This is equal to cost + profit. We are told the profit we want is based on the cost. So we take the cost x as 100% and the profit as 25% this will give you the selling price at 125% x. We know this is $50 dollars so to get x we divide by 125/100 You could also have this as an equation. 1x + .25x = 50 1.25x = 50 x = 50/1.25 x=40
April 18, 2020 at 2:14 am
It’s very helpful, thank you.
April 18, 2020 at 9:36 am
December 12, 2018 at 7:06 pm
December 13, 2018 at 8:32 am
October 31, 2018 at 5:19 pm
whts is the easiest way to understand maxmin, Maximin. and Minimax
November 1, 2018 at 6:57 am
I do not understand why you have posted this as a comment on a lecture on target costing!!
Maximin etc. are all explained in my free lectures on risk and uncertainty.
October 2, 2018 at 2:49 pm
No, no – it is nothing like cost plus pricing!!
With cost plus pricing we start with the cost and add on a % to get the selling price. But there is then no incentive to reduce costs.
With target costing we start with a realistic selling price and then decide what the maximum cost has to be to be able to get the desired profit.
October 2, 2018 at 8:33 am
Thank you John. Based on your presentation target costing is effectively the same as conventional cost plus pricing. Why the target cost is always calculated on a per unit basis according to your explanation?
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