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