- This topic has 4 replies, 2 voices, and was last updated 7 years ago by
.
- Posts
Dear Sir,
I would be grateful if you could help me to understand the answer of this true/false question.
A target cost is the difference between the target cost for a product and its projected cost. The answer is true and I don’t understand it . May you please help me ?
Sir , I’ve another question on TC.
Product X targets selling price per unit = $10
Target profit = 25%
Current cost = $8.4 per unit .How is the target cost gap $0.4 ?
I would be grateful if you could help me sir
First question: Either you have misread the question, or there is a typing error in whatever book you found it.
The difference between the target cost and the projected cost is the target cost gap.Second question: I would assume that the question actually says that the target profit is 25% of cost (or that the mark-up is 25%, which automatically means 25% of cost). In which case the target cost is 100/125 x $10 = $8. (25% x $8 = $2, and so the selling price = 8 + 2 = $10).
Therefore the cost gap is 8.40 – 8.00 = $0.40.Both of these points are explained, with examples, in my free lectures on target costing, and I do suggest that you watch them.
The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
- The topic ‘Target costing’ is closed to new replies.