ACCA Applied Skills · Performance Management · Target costing
A product has a target cost of $60 per unit and a current cost of $75 made up of materials $40, labour $20 and overheads $15. Value engineering will cut materials by 20% and labour by 10%. What gap remains per unit?
The remaining gap is $5 per unit. Savings are $8 on materials and $2 on labour, totalling $10, reducing cost from $75 to $65, which is still $5 above the $60 target cost.
- A$5Correct
- B$0
- C$15
- D$8
Explanation
Materials saving $8, labour saving $2, total $10. New cost $65. Remaining gap = $65 - $60 = $5. The $15 option ignores the savings; $0 assumes the savings equal the gap.
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