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The target cost for a product has been calculated to be $38.00 which is 5% less than the actual cost currently achievable. The business is considering providing some internal training to improve efficiency of labor and hence reduce the cost gap. The current material cost is $10 per unit and this will not change as efficiency changes. Labor rates are $8 per hour.
How much of an efficiency improvement (measured by the % reduction in labor time per unit will be necessary to remove the cost gap completely). Accurate to 2decimal places.
A. 5.00%
B. 6.67%
C. 7.10%
D. 7.28%Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers.
The current cost is 38/0.95 = $40 and they need to reduce this by $2.
The material cost is $10, and therefore the current labour cost is $30 and needs to reduce by $2. That means a reduction of 2/30 = 6.67%
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