ExpertMedium2 marksShort Answer
ACCA · Question 15 · Cost Accounting Techniques
An electric vehicle (EV) manufacturer is designing a new battery pack. The competitive market selling price is estimated at $50,000 per unit. The company requires a profit margin of 20% on the selling price. The current estimated production cost is $45,000 per unit.
Calculate the target cost gap per unit. (Enter numbers only)
An electric vehicle (EV) manufacturer is designing a new battery pack. The competitive market selling price is estimated at $50,000 per unit. The company requires a profit margin of 20% on the selling price. The current estimated production cost is $45,000 per unit.
Calculate the target cost gap per unit. (Enter numbers only)
How to approach this question
1. Calculate the target profit. 2. Calculate the target cost (Selling Price - Target Profit). 3. Calculate the cost gap (Estimated Cost - Target Cost).
Full Answer
Target Selling Price = $50,000.
Required Profit = 20% of $50,000 = $10,000.
Target Cost = $50,000 - $10,000 = $40,000.
Current Estimated Cost = $45,000.
Target Cost Gap = $45,000 - $40,000 = $5,000.
Common mistakes
Calculating 20% on cost instead of selling price, or confusing target cost with the cost gap.
Practice the full ACCA MA — Management Accounting Practice Exam 4
38 questions · hints · full answers · grading
More questions from this exam
Q01A global environmental NGO is planning its resource allocation for the next five years to combat ...EasyQ02A fintech startup is analyzing data to determine the viability of launching a new micro-lending a...EasyQ03A public water utility incurs a base maintenance cost of $10,000 per month for up to 5,000 gallon...MediumQ04An agricultural cooperative produces organic fertilizer. Which of the following costs would be cl...MediumQ05A cross-border logistics company uses an additive time series model to forecast shipping volumes....Medium