CMA Final · Strategic Cost Management · Target Costing
Ananya Appliances plans to launch a mixer-grinder. Market research shows customers will pay Rs 4,000 per unit, and the company requires a target profit margin of 25% on selling price. What is the target cost per unit?
The target cost is Rs 3,000 per unit. Target costing deducts the required profit from the market price. A 25% margin on Rs 4,000 is Rs 1,000, so Rs 4,000 minus Rs 1,000 leaves Rs 3,000 as the cost the product must achieve.
- ARs 3,000Correct
- BRs 3,200
- CRs 1,000
- DRs 3,750
Explanation
Target profit = 25% x 4,000 = Rs 1,000. Target cost = selling price - target profit = 4,000 - 1,000 = Rs 3,000. Rs 3,200 wrongly applies 20% (margin on cost converted incorrectly), and Rs 1,000 is the profit itself.
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