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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Target Costing

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- October 5, 2020 at 9:37 pm #587422
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. $2.40Target 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

= $0.60October 6, 2020 at 9:23 am #587444The 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%).

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