folt manufacturing march jun 19

They are included. Total inspection costs for the remaining 2 years = 2 x 100,000 = 200,000 Remaining products to be made = 250,000 200/250 = 0.8. This is included in the answer ( at least it is in the ACCA version of the answer).

Regarding requirement ii, in the answer the target cost is calculated by using 25% profit margin, not 20%. Why?

It is to do with the difference between the meaning of profit margin and mark-up. Profit margin (or gross profit margin) is always with respect to sales. Mark-up is always with respect to costs. If an item sells for $100 and there is a profit margin of 20%, then the profit is to be $20 and therefore the costs will be $100 - $20 = $80. However, this means that the mark-up is 20/80 = 25%. In the question, the selling price is $175; at a profit margin of 20%, the profit must be $35 and the costs must therefore be 175 - 35 = 140. The mark-up is 35/140 = 25%.