Question 1

A ride-sharing app is developing a new premium tier service. Market research indicates customers are willing to pay $20 per ride. The company requires a profit margin of 20% on the selling price.

The current estimated cost to provide this premium ride is $18.50.

What is the target cost gap?

Accepted Answer

1. Calculate required profit (20% of selling price). 2. Calculate target cost (Selling price - Required profit). 3. Calculate cost gap (Estimated cost - Target cost).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Calculating the margin on cost instead of selling price, or confusing the target cost ($16) with the cost gap.

A ride-sharing app is developing a new premium tier service. Market research indicates customers are willing to pay $20 per ride. The company requires a profit margin of 20% on the selling price.

The current estimated cost to provide this premium ride is $18.50.

What is the target cost gap?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 5

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