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Target costing question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Target costing question

  • This topic has 3 replies, 2 voices, and was last updated 6 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • August 16, 2016 at 11:20 pm #333692
    afrozahsan
    Participant
    • Topics: 2
    • Replies: 1
    • ☆

    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

    August 17, 2016 at 6:20 am #333723
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51555
    • ☆☆☆☆☆

    For 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.

    August 18, 2016 at 5:52 am #333861
    afrozahsan
    Participant
    • Topics: 2
    • Replies: 1
    • ☆

    Thank you John this is a very clear and helpful answer.

    August 18, 2016 at 6:51 am #333885
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51555
    • ☆☆☆☆☆

    You are welcome 🙂

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