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TARGET COST GAP

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › TARGET COST GAP

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • Author
    Posts
  • April 13, 2021 at 5:50 pm #617464
    E@5405
    • 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: 49583
    • ☆☆☆☆☆

    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.

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