Question 1

A tech company is developing a new smartwatch. The competitive market price is expected to be $250. The company requires a profit margin of 20% on the selling price. The current estimated cost to manufacture the watch is $215.

What is the target cost gap?

Accepted Answer

Calculate target cost: Selling Price - Required Profit. Then calculate the gap: Estimated Cost - Target Cost.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Calculating a 20% mark-up on cost instead of a 20% margin on sales.

A tech company is developing a new smartwatch. The competitive market price is expected to be $250. The company requires a profit margin of 20% on the selling price. The current estimated cost to manufacture the watch is $215.

What is the target cost gap?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 2

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