20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for September 2025 exams.
Get your discount code >>

TARGET COST GAP

This topic has 1 reply, 2 voices, and was last updated 4 years ago by John Moffat.

Viewing 2 posts - 1 through 2 (of 2 total)

Author
Posts
April 13, 2021 at 5:50 pm #617464
E@5405
Participant
- Topics: 1
- Replies: 0
Kindly help with the below question.
The Following information is available for a product:
Target Selling Price = $20 per unit
Target Mark-up on cost = 1/3
Estimated Production Cost = $16 per unit
What is the target cost gap for this product?
why is the Target cost = (3/4)* $20 = $15
Cost Gap = $16 – $15 = $1
Please, why the use of 3/4?
Thank you.
April 14, 2021 at 8:28 am #617588
John Moffat
Keymaster
- Topics: 57
- Replies: 54701
Since the mark-up is 1/3 of cost, then for every $3 of cost the profit will be $1 and the selling price will be $4.
Putting it the other way round, for every $4 of selling price the cost will be $3.
So if the selling price is $20, the cost will be 3/4 x $20.
Author
Posts

Viewing 2 posts - 1 through 2 (of 2 total)

You must be logged in to reply to this topic.