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target costing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › target costing

  • This topic has 3 replies, 3 voices, and was last updated 4 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • May 15, 2020 at 6:47 pm #570966
    chandni24
    Participant
    • Topics: 25
    • Replies: 6
    • ☆

    Question

    This question is from the bpp exam kit question 31 i dont understand in the answers where they got 50 as the fixed cost and why they divided the budgeted fixed by the fixed cost

    A company has a target mark up of 25% and sells into a competitive market where the market price is $120
    per unit. The company’s current costs per unit are $46 for variable costs and $60 for fixed costs, and it has
    a budgeted output of 10,000 units.
    What is the minimum production required to close the target cost gap?
    A 11,778 units
    B 13,636 units
    C 11,042 units
    D 12,000 units

    May 16, 2020 at 11:40 am #571019
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    Given that they require the profit to be 25% of cost, the target cost must be 100/125 x $120 = $96.

    We know from the question that the variable cost is $46 per unit and so to hit target cost the fixed costs per unit have to be 96 – 46 = $50 per unit.

    They budgeted on the total fixed costs as being 10,000 x $60 = $600,000, and by definition the total will remain at $600,000 however many they produce.

    For the fixed costs per unit to be $50, they will therefore have to produce 600,000/50 = 12,000 units.

    October 5, 2020 at 4:23 pm #587410
    Phuong Lan
    Participant
    • Topics: 0
    • Replies: 2
    • ☆

    Tks you so much. The answer was really helpfull

    October 6, 2020 at 9:20 am #587441
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘target costing’ is closed to new replies.

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