CAF-5 · Chapter 12 · Question 10 of 10
If a company successfully redesigns its product and streamlines its manufacturing process so that the expected full cost of the product falls exactly equal to the calculated target cost, what is the resulting target cost gap?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It is zero.
Explanation
The target cost gap is mathematically Expected Cost - Target Cost. If the company reduces its expected cost so that it perfectly matches the target cost, the formula yields exactly zero, meaning the product is ready to launch and will hit its profit targets.
More Target Costing MCQs
- Q2Which of the following best defines the "Target Cost Gap"?
- Q3A company plans to sell a new product (NP8) at a target sales price of Rs. 70 per unit. The company requires a minimum gross profit margin…
- Q4Continuing from the previous scenario, if the company calculates that the expected full cost per unit of product NP8 will be Rs. 55, what…
- Q5When estimating the total expected cost of a product to compare against the target cost, which of the following costs should be included?
- Q6A company is evaluating its existing cost structure against its target cost. The current total expected cost of the product is Rs. 91,000…