ACCA · Question 18 · 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.
Which TWO of the following methods would be appropriate for AeroYield to close the target cost gap?
Answer options:
Increase the selling price of the AgriScout to $8,533.
Use value engineering to redesign the drone's casing using lighter, cheaper materials that do not affect performance.
Negotiate bulk discounts with the suppliers of the drone's camera sensors.
Reduce the required profit margin to 20%.
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