ACCA MA · Chapter 9 · Question 6 of 11
A new product will have a market selling price of $80. The company requires a profit margin of 25% of the selling price. The current estimated cost of the product is $66. What is the cost gap?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $6
Explanation
Target cost = selling price - required profit = 80 - (25% x 80) = $60. Cost gap = estimated cost - target cost = 66 - 60 = $6. Treating the 25% as a mark-up on cost would give a target cost of 80 / 1.25 = $64 and a gap of $2.
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