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- This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
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- August 16, 2016 at 11:20 pm #333692
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 unitAnswer 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 = $0.40August 17, 2016 at 6:20 am #333723For 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 #333861Thank you John this is a very clear and helpful answer.
August 18, 2016 at 6:51 am #333885You are welcome 🙂
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