ExpertEasy2 marksShort Answer
ACCA · Question 16 · Target Costing
Section B - Case 1: AeroYield
AeroYield is a technology startup developing specialized drones for the agriculture sector to monitor crop health. The company is preparing to launch its new model, the 'AgriScout'. Market research indicates that customers are willing to pay $8,000 for the AgriScout. AeroYield's investors require a profit margin of 25% on the selling price.
The current estimated production cost for the AgriScout is $6,400 per unit.
Calculate the target cost for the AgriScout drone. (Enter the number only).
Section B - Case 1: AeroYield
AeroYield is a technology startup developing specialized drones for the agriculture sector to monitor crop health. The company is preparing to launch its new model, the 'AgriScout'. Market research indicates that customers are willing to pay $8,000 for the AgriScout. AeroYield's investors require a profit margin of 25% on the selling price.
The current estimated production cost for the AgriScout is $6,400 per unit.
Calculate the target cost for the AgriScout drone. (Enter the number only).
How to approach this question
Target Cost = Target Selling Price - Target Profit. Target Profit = 25% of $8,000.
Full Answer
Target Selling Price = $8,000.
Target Profit = 25% of $8,000 = $2,000.
Target Cost = Target Selling Price - Target Profit = $8,000 - $2,000 = $6,000.
Common mistakes
Calculating the margin on cost instead of selling price, or confusing target cost with the current estimated cost.
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