CMA Final · Strategic Cost Management · Target Costing
Ananya Appliances plans to launch a mixer-grinder. Market research shows customers will accept a selling price of Rs 4,800 per unit, and the company requires a profit margin of 25% on selling price. What is the target cost per unit?
The target cost is Rs 3,600 per unit. Under target costing, cost equals the market price minus the required profit. A 25% margin on Rs 4,800 gives Rs 1,200 profit, so the permitted cost is Rs 4,800 minus Rs 1,200, which equals Rs 3,600.
- ARs 3,840
- BRs 3,600Correct
- CRs 4,000
- DRs 1,200
Explanation
Target profit = 25% of Rs 4,800 = Rs 1,200. Target cost = selling price - target profit = 4,800 - 1,200 = Rs 3,600. Rs 3,840 wrongly applies 20% (margin as markup on cost converted incorrectly), and Rs 4,000 uses 4,800/1.2.
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