ExpertMedium2 marksMultiple Choice
ACCA · Question 3 · Specialist cost and management accounting techniques
Section A
EduTech Solutions is developing a new online certification course. The market research indicates that the maximum price students are willing to pay is $150. The company requires a profit margin of 20% on the selling price. The estimated current cost to deliver the course is $135 per student.
What is the target cost gap per student?
Section A
EduTech Solutions is developing a new online certification course. The market research indicates that the maximum price students are willing to pay is $150. The company requires a profit margin of 20% on the selling price. The estimated current cost to deliver the course is $135 per student.
What is the target cost gap per student?
Answer options:
A.
$15
B.
$30
C.
$120
D.
$22.50
How to approach this question
1. Calculate the required profit. 2. Calculate the target cost (Selling Price - Required Profit). 3. Calculate the cost gap (Estimated Cost - Target Cost).
Full Answer
A.$15✓ Correct
Selling price = $150. Required profit = 20% of $150 = $30. Target cost = $150 - $30 = $120. Current estimated cost = $135. Target cost gap = $135 - $120 = $15.
Common mistakes
Calculating the profit margin as a mark-up on cost, or selecting the target cost instead of the gap.
Practice the full ACCA PM — Performance Management Practice Exam 3
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