S Company is a manufacturer of multiple products and uses target costing. It has been noted that Product P currently has a target cost gap and the company wishes to close this gap. Which of the following may be used to close the target cost gap for product P?
A、Use overtime to complete work ahead of schedule
B、Substitute current raw materials with cheaper versions
C、Raise the selling price of P
D、Negotiate cheaper rent for S Company's premises
A、Use overtime to complete work ahead of schedule
B、Substitute current raw materials with cheaper versions
C、Raise the selling price of P
D、Negotiate cheaper rent for S Company's premises
【参考答案及解析】
Reducing the target cost gap should focus on ways of reducing the direct or variable costs of the product. This can be achieved by using a substitute cheaper raw material, but without affecting product quality. Reducing fixed overhead costs is not a way of reducing the gap. Using overtime is likely to increase costs and the target cost gap. Raising the selling price does not affect the cost gap directly, although it may lead to a reassessment of the target cost.
Reducing the target cost gap should focus on ways of reducing the direct or variable costs of the product. This can be achieved by using a substitute cheaper raw material, but without affecting product quality. Reducing fixed overhead costs is not a way of reducing the gap. Using overtime is likely to increase costs and the target cost gap. Raising the selling price does not affect the cost gap directly, although it may lead to a reassessment of the target cost.