pm scma target costing

Question 1

what is target costing

Answer 1

looking at what price consumers will pay and then from that selling point taking away your desired profit margin to get your target cost

Question 2

what are the steps of target costing?

Answer 2

1. do market research to find out people will py for product
2. set the selling price
3. set a desired profit margin
4. do SP- DESIRED PROF MARGIN to get target cost

Question 3

what is the target cost gap

Answer 3

it is the difference between thew target cost established and the actual costs incurred when trying to achieve the target cost. you need to try to close this gap

Question 4

how to calculate target cost gap

Answer 4

estimated product cost - target cost

Question 5

why ways can a business close the target gap (8)

Answer 5

1. remove features from the product that add to the cost but do not significantly add value in the eyes of the customer
2. create teams from people in different ideas for innovation and greater efficiency
3. reviewing the entire supply chain to try and reduce price like going to cheaper supplier
4. can increase training or changing workplace practices for future lower costs
5. automation in certain areas can reduce costs
6. reducing employee idle time by 6e.g increasing incentives
7. the ;earning curve
8. accruing better technology

Question 6

what questions may an employer ask in order to close the target cost gap (6)

Answer 6

1. can any materials be eliminated e.g cut down on packing materials
2. can a cheaper material be substituted without affecting quality
3. can labour saving be used to reduce cost without reducing quality
4. can productivity be improved , g.g motivation
5. can we acheive economies of scale
6. could cost savings be made by reviewing the supply chain

Question 7

features of the service industry

Answer 7

1. a service is consumed cat the sake time out is made available
2. because the service idustry inc=volvez people it has a degree sof variability
3. the services are intangibles
4. the services are perishable as after it tis consumed it cannot nbe had again
5. no traference of ownership takes place when a service is provided
6. sevice indutries rely heavily on their staff, which often has face-to-face contact woitjht the customer, and represent the organizations brand

Question 8

what are the benefits of adopting target costing?

Answer 8

1. you look at customers needs before production to meet more demands from customer and have mere sales
2. only feature valued by customer will be included in the product so less wasted costs with features that they don’t care about
3. cost control will begin much earlier in the process as if the target cost is established early , steps can be taken to reduce the gap.
4. reduces time taken for product to go to market , as no need of extra uselesss features our going back to drawing board

5.