CMA Final · Strategic Cost Management · Target Costing
A firm's target cost for a product is Rs 800 per unit. Current cost is Rs 900. Value engineering identifies a saving of Rs 60 per unit. Kaizen costing during production is expected to cut a further 5% of the remaining cost. What is the final cost per unit and is the target met?
The final cost is Rs 798 per unit, so the target is met. Value engineering reduces Rs 900 to Rs 840, and a 5% kaizen saving of Rs 42 on that figure brings it below Rs 800.
- ARs 798; target metCorrect
- BRs 840; target not met
- CRs 800; target met
- DRs 855; target not met
Explanation
After value engineering cost = 900 - 60 = Rs 840. Kaizen 5% of 840 = Rs 42. Final cost = 840 - 42 = Rs 798, which is below Rs 800, so target is met. Rs 840 ignores kaizen.
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