ACCA Applied Knowledge · Management Accounting · Cost reductions and value enhancement
Which of the following is a typical technique used to close the cost gap under target costing?
Value engineering is the typical technique. It reviews product design, materials and processes to remove costs that customers do not value, helping bring the estimated cost down to the target cost. Cost-plus pricing works in the opposite direction.
- AValue engineeringCorrect
- BVariance investigation using a standard cost
- CFlexing the budget to actual activity
- DCost-plus pricing of the final product
Explanation
Value engineering examines product design and components to remove cost that does not add value to the customer, closing the gap between estimated and target cost. Cost-plus pricing is the opposite logic, as it starts with cost and adds profit to set price.
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