Target costing — OpenTuition Forums

Vvaliaty13y ago

Part of the target costing of chairs:

Leather costs $10 per metre and 2 metres are needed for a complete chair although 20% of all leather is wasted in the upholstery process.

""calculate the cost"" :

cost per chair is $10*2metres = $20
+ waste $20*20%= $4
total cost $24

AM I RIGHT??

THE ANSWER SHOW A COST OF $25!!
WHAT I HAVE DONE WRONG?

((deleted)13y ago#1

instead of multiplying 20%, u should have used 100/80 with 20, but sorry to say i dont know the reason

((deleted)13y ago#2

yes kam is right and the reason is that we do not give cost to normal wastage So you should calculate it like
$10*2metres = $20
now $20 is our 80% and we divide 20/80*100 and get full cost
i.e $25

Vvaliaty13y ago#3

thank u! :)

((deleted)13y ago#4

as per question required material per chair is 2 metres, which is not 100 percentage we bought
we have some portion of material (20 percent) is wasted out of we bought during making chair. so what question give is only 80 percent. we have to find out 100 percentage material we actually purchased.
i.e.
80 percentage = 2 metres
1 percentage = 2/80 metres
100 percentage = (2/80) * 100
= 2.5 metres required to make 1 chair

1 metre cost = $ 10
2.5 metres cost = $ 10 * 2.5
= $ 25 is the answer