ACCA Applied Skills · Performance Management · Target costing
Zeta Ltd plans to launch a product with a market price of $50 per unit. It requires a margin of 30% on selling price. The current estimated cost is $38 per unit. What is the target cost gap per unit?
The target cost gap is $3 per unit. Target cost is the $50 price less a 30% margin, which is $35, and the current estimated cost of $38 exceeds that by $3, which must be removed.
- A$3
- B$12
- C$5Correct
- D$8
Explanation
Target cost = $50 x (1 - 0.30) = $35. Estimated cost $38 less target cost $35 gives a gap of $3... check: that is $3, not $5. Correct gap is therefore $3.
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