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Regarding the second statement we never consider components as direct material, as we never whether they are direct or indirect material. I mean the second statement is contentious. I dont know why it is true
So sir are you suggesting that when we use target costing approach we need to include all costs whether production or non-production?
=(2500+1700+1400)x1000/35000units=16$/unit of total non-production cost/unit has been added
answer:
Target price is $45 and the profit margin is 35% which results in a target cost of $29.25. The current estimated cost is $31.30 which results in a cost gap of $2.05.Helot Co has previously used a traditional absorption costing system and full cost plus pricing to cost and price its products. It has recently recruited a new finance director who believes the company would benefit from using target costing. He is keen to try this method on a new game concept called Spartan, which has been recently approved.
After discussion with the board, the finance director undertook some market research to find out customers’ opinions on the new game concept and to assess potential new games offered by competitors. The results were used to establish a target selling price of $45 for Spartan and an estimated total sales volume of 350,000 units. Helot Co wants to achieve a target profit margin of 35%.
The finance director has also begun collecting cost data for the new game and has projected the following:
Production costs per unit $ Direct material 3.00 Direct labour 2.50 Direct machining 5.05 Set?up 0.45 Inspection and testing 4.30 Total non?production costs $000 Design (salaries and technology) 2,500 Marketing consultants 1,700 Distribution 1,400
but sir in Helot Co(2016) full cost plus pricing approach had been used and in that question they had included non-production costs to find out full cost and then compared it with target cost, to find if a cost gap exists or not
Is it that every item other than non-production variable and fixed overheads and direct material will be added?
its confusing me because the product with highest volume will have highest total fixed overheads but the product with the highest DLH requirement per unit basis, will have highest FOH/unit. so when comparing their respective ABC results with traditional costing figures we say that FOHs were apportioned more to it because of higher volume or DLH requirement per unit….???
talking about @givankala22’s doubt, boilers are for the use by the tenant(like any other domestic item) and the TX-UK FY19 rule is that cap ex. only on any asset used for the upkeep of the property (like CCTV cameras, lawn mowers ) are deductible but cap ex. like on anything else, say, domestic items cannot be set off against property income(at least not when they are bough for the first time). So how is this possible that we would be able to set off capital ex. on a fixture like boiler against our PI?
sir i think i have noticed an interesting thing. for an employee who has joined on say 1 jan’20 and has monthly salary of 3300, so the amount of class 1 employee nic for y/e 2019/20 would(9900-8632*3/12)*12%
but if there’s a sole trader or partner commencing or joining ,respectively, on 1 jan’20 having earned 9900by the first tax year end, then they have to pay class 4 nic (9900-8632)*9%. no apportionment of upper threshold here.
Is this how precisely NIC works?? as far as the proportionate part is concerned