ACCA Applied Knowledge · Management Accounting · Cost reductions and value enhancement
A target cost gap of $12 per unit exists for a product. Value engineering proposes: replacing a $15 component with a $10 alternative, and removing a $4 feature that customers do not value. What is the remaining cost gap per unit after these changes?
The remaining gap is $3 per unit. The component switch saves $5 and removing the unwanted feature saves $4, giving total savings of $9, which is deducted from the $12 target cost gap.
- A$3Correct
- B$7
- C$8
- D$12
Explanation
The component change saves $15 - $10 = $5 and removing the feature saves $4, a total of $9. Remaining gap = $12 - $9 = $3. Selecting $7 would result from counting only the $5 saving, and $8 from counting only the feature plus another miscalculation.
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