QUESTION THREETreble Plc is planning to commence production of a new product –the Dom....QUESTION...

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Accounting

QUESTION THREE
Treble Plc is planning to commence production of a new product –the Dom. It is expected that demand for the Dom will last for 6years and that they will sell 1,000 units in the first year; 3,000units in the second year and 6,000 units per year thereafter. Theselling price will be ZMW15 per unit and the company wishes toachieve a mark-up of 50% on cost.
The following costs have been estimated:
Design and development             ZMW 40,000
Variable production Cost:            ZMW 7 per unit
Additional fixed production cost ZMW 4000 per year
End of life cost                                ZMW 10,000
Required
Calculate the target cost per unit for the production of Doms.
Calculate the actual full production cost per unit for thefirst year and comment as to whether or not there is a costgap.
Calculate the lifecycle cost per unit and comment as to whetheror not there is a costgap.
State and explain three measures a company could take to closea cost gap.

Explain how target costing can be beneficial to modern daybusinessmanagers.

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3.7 Ratings (382 Votes)

1 Target cost per unit Particulars ZMW A Selling price per unit 15 B Markup 50 on cost 3333 on selling price 5 Cost per unit AB 10 Therefore Target cost is ZMW 10 per unit 2 Actual production cost for the first year Particulars ZMW unit Units ZMW Variable production cost 7 1000 7000 Fixed production cost 4000 Total production cost 11000 Production cost per unit 11000 1000 units 11 Actual production cost per unit for the first year is ZMW 11 It has exceeded the target cost by See Answer

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In: AccountingQUESTION THREETreble Plc is planning to commence production of a new product –the Dom....QUESTION THREETreble Plc is planning to commence production of a new product –the Dom. It is expected that demand for the Dom will last for 6years and that they will sell 1,000 units in the first year; 3,000units in the second year and 6,000 units per year thereafter. Theselling price will be ZMW15 per unit and the company wishes toachieve a mark-up of 50% on cost.The following costs have been estimated:Design and development ZMW 40,000Variable production Cost: ZMW 7 per unitAdditional fixed production cost ZMW 4000 per yearEnd of life cost ZMW 10,000RequiredCalculate the target cost per unit for the production of Doms. Calculate the actual full production cost per unit for thefirst year and comment as to whether or not there is a costgap. Calculate the lifecycle cost per unit and comment as to whetheror not there is a costgap. State and explain three measures a company could take to closea cost gap. Explain how target costing can be beneficial to modern daybusinessmanagers.