ACCA Applied Skills · Performance Management · Target costing
A company uses target costing for a new product. The target cost is $45 and the current estimated cost is $52. Value engineering identifies savings of $5 per unit. What is the remaining cost gap per unit?
The remaining cost gap is $2 per unit. The original gap is the $52 estimated cost less the $45 target, which is $7. Value engineering savings of $5 reduce this, leaving $2 still to be removed to reach the target cost.
- A$2Correct
- B$5
- C$7
- D$12
Explanation
Initial cost gap = 52 - 45 = $7. Savings of $5 reduce this to $2. Choosing $7 ignores the savings already identified, and $12 adds the savings instead of deducting.
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