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The following features relate to two electricity supply companies.
Meter reading billing and collection costs.Company A Company B
Total costs ($000) 600 1000
Units sold (millions) 2800 9600
No. of consumers (thousands) 800 1600
Sales of electricity (millions) 18 50The figures given indicate that:
A company A is more efficient than Company B
B company A is less efficient than Company B
C company A and B are as efficient as each other
D That neither company is efficientThe selling price of product k is set at $450 for each unit
if the company requires a return f 20% in the coming year on product k, the target cost for each unit for the coming year is??
Question 1
What method is used to find out whether a company is efficient or not??There is no specific method. Efficiency is looking at how well the company is using their resources.
So in this question you would look at the cost per unit sold to see which was the more efficient (the lower cost per unit, the better).Your question on target costing cannot be asked in the exam – in Paper F2 you cannot be asked calculations on target costing.
However, even then, the question as you have typed it is impossible to answer. It is needed to know on what the return of 20% is to be calculated. Are you sure it says return, and not mark-up or margin?
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