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Target Cost gap

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Target Cost gap

  • This topic has 2 replies, 2 voices, and was last updated 1 year ago by John Moffat.
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  • October 25, 2021 at 5:23 pm #639089
    anniebabe
    Participant
    • Topics: 33
    • Replies: 102
    • ☆☆

    Please can someone help me understand this question – many thanks.

    Product B expected selling price per unit $15.00
    Target profit 25% on cost
    Current cost $12.60 per unit

    what is the cost gap?
    answer 60 cents

    October 25, 2021 at 5:27 pm #639091
    anniebabe
    Participant
    • Topics: 33
    • Replies: 102
    • ☆☆

    doesnt matter its the margin mark up thing isnt it
    i kept doing 15.00/100 – when it should be 15.00/125

    October 26, 2021 at 8:25 am #639116
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    Yes, it is because the target profit is 25% of the cost and therefore the cost must be 100/125 x $15 = $12. (and, of course, it checks because the profit is 15 – 12 = $3, and this is 25% x $12 🙂 )

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