ExpertMedium2 marksShort Answer
ACCA · Question 03 · Specialist cost and management accounting techniques
Section A
NovaTech is a startup developing a revolutionary AI-driven translation earpiece. Market research indicates that the maximum selling price the market will bear is $160 per unit. NovaTech's investors require a profit margin of 30% on the selling price.
The current estimated cost to manufacture the earpiece is $125 per unit.
Calculate the target cost gap per unit. (Enter the numerical value only, without the $ sign)
Section A
NovaTech is a startup developing a revolutionary AI-driven translation earpiece. Market research indicates that the maximum selling price the market will bear is $160 per unit. NovaTech's investors require a profit margin of 30% on the selling price.
The current estimated cost to manufacture the earpiece is $125 per unit.
Calculate the target cost gap per unit. (Enter the numerical value only, without the $ sign)
How to approach this question
1. Calculate the required profit: 30% of $160.
2. Calculate the target cost: Selling Price - Required Profit.
3. Calculate the target cost gap: Estimated Cost - Target Cost.
Full Answer
Selling Price = $160.
Required Profit = 30% x $160 = $48.
Target Cost = $160 - $48 = $112.
Current Estimated Cost = $125.
Target Cost Gap = $125 - $112 = $13.
Common mistakes
Calculating the 30% margin on cost instead of selling price, or subtracting the estimated cost from the selling price directly.
Practice the full ACCA PM — Performance Management Practice Exam 4
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