Brief: I am confronted with the following question but a part of the answer does not make sense to me can you please help me understand this:
My area of confusion is given in the curly braces {} in the answer section.
Question: Given the following information what is the target cost gap for Product X?
Target Selling Price per unit $10
Target Profit 25% on cost
Current Cost $8.40 per unit
Answer Given:
Target Profit (25% of cost = 20% of sales price) = $2
{My question is how is 25% of cost equal to 20% sale price}
Target cost $10 - $2 = $8
Target cost gap = $8.40 - $8 = $0.40
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Target costing question
9y ago#1For every $100 cost, the profit is $25 and therefore the selling price is $125.
Putting it the other way round, for every $125 selling price the profit is $25, which is 25/125 or 20% of the selling price.
Thank you John this is a very clear and helpful answer.
9y ago#3You are welcome :-)
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