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Increase in selling price to reduce or close target cost gap

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Increase in selling price to reduce or close target cost gap

  • This topic has 0 replies, 1 voice, and was last updated 5 years ago by yorkey.
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  • October 2, 2020 at 9:38 am #587081
    yorkey
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    Dear Sir, Could you please explain why is that a change in selling price won’t reflect the target cost gap?

    as an example of it see the revision kit part below:

    Question asks which of the following represents a possible method for closing the target cost gap for the webcam?

    – Increase its selling price
    – Employ more specialist staff in its production
    – Redesign the webcam
    – Increase the number of bespoke components

    and the answer is:

    Redesign the webcam

    Changes to selling price will have no effect upon target cost. The remaining options (employ more specialist
    staff; increase the number of bespoke components) would serve to increase the target cost gap rather than
    decrease it. If a product cannot be made within the target cost, so that a cost gap exists, the targets must be
    reduced, or the product redesigned.

    Could you please explain why change in SP of lets say $40 to 30$ won’t have an effect on target cost gap?

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