Hi John
I hope you are well. Could you please explain this to me ? I was watching the target costing lecture and the example you show around 8.45 mins, I am not sure how you get 25/125 ? I hope you can explain this in a way I can understand. Sorry for the silly question.
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Target Costing - Chapter 2
2y ago#1Apologies for the delay in replying.
Well it says you want a profit of 25% of cost
If the cost is 100 then the profit is 25
And the selling price is 125
Cost 100 + profit 25 = 125 selling price
So if the selling price is say 50
50 * 25/125 = profit would be 10
Target cost is 40
Another way of looking at is
Target cost ? + profit 1/5, 25/125 or 20% = 50 selling price
So 20% of selling price is 10
Target cost? + 10 = 50
Target cost is 40
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