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Hello sir,
wishing you a very good afternoon.My question for today is regarding different ways of achieving target cost.
First lets talk about your way of doing it.
Here is a link of a thread we had yesterday where we discussed about one of my doubts relating to target costing:
https://opentuition.com/topic/target-costing-doubt-need-assistance-with-understanding-a-particular-step/In the thread that the above link directs you to, i have also provided a link which i will once again share below for a quick reference: (This link contains a screenshot of a question that we can use as a reference)
https://imgur.com/a/pRyrzIn both the previous discussion we had in the first link given above, your first reply shows how you go about solving the problem.
My question is,
Do you know about the formula, where when there is a required markup/profit on cost, you can use:
Target cost = SP/1+profit%My guess is that you know it, but i like to think otherwise, which is the reason im asking this question.
Why do it the way “YOU” do it, if there is a simpler way like the formula i just mentioned above?
Im sure you must have a valid reason for doing what your doing, id like to know what you think about this formula and compare it with the way you do it and tell me if there are any pro’s and con’s in using one method or the other.That is all 🙂
It does not matter how you do the arithmetic (because nobody will look at your workings 🙂 ). Do it in whichever way you find the easiest.
However, do not just learn formula. The exam is designed to test your understanding, and the examiner deliberately sets questions in ways that check that you understand what you are doing and that you are not simply learning rules without understanding.
Obviously the formula you have written gives the same answer. I prefer to do it the way I do because once you understand then there is nothing to remember!
@johnmoffat said:
However, do not just learn formula. The exam is designed to test your understanding, and the examiner deliberately sets questions in ways that check that you understand what you are doing and that you are not simply learning rules without understanding.
Obviously the formula you have written gives the same answer. I prefer to do it the way I do because once you understand then there is nothing to remember!
Understood sir 🙂
As always, thank you very much for your help!
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