CAF-5 · Chapter 12 · Question 6 of 10
A company is evaluating its existing cost structure against its target cost. The current total expected cost of the product is Rs. 91,000 per unit, while the target cost has been calculated as Rs. 78,350 per unit. What does the difference of Rs. 12,650 represent?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The target cost gap that needs to be eliminated.
Explanation
The difference between the existing/expected cost (Rs. 91,000) and the calculated target cost (Rs. 78,350) represents the target cost gap (Rs. 12,650) which the company must find a way to eliminate to achieve its desired profitability.
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