The following information has been collected about a new Product B.
Product B expected selling price per unit $15
Target profit 25% on cost
Current cost $12.60 per unit
What is the target cost gap for Product B?
A. $0.60
B. $0.90
C. $1.35
D. $2.40
Target profit (25% of cost = 20% of selling price)- I dont understand this bit- where are they getting the 20%?
= $3
Target cost: = $15 - $3
= $12
Cost gap = $12.60 - $12
= $0.60
Ask the Tutor ACCA PM
Target Costing
5y ago#1The profit is 25% of cost.
So for every $100 cost, the profit will be $25 and therefore the selling price will be $125.
Putting it the other way round, for every $125 selling price the profit will be $25.
So the profit will be 25/125 of the selling price (which is 20%).
Sign in to reply to this topic.