Helot Co-Target Costing ACCA Past Paper Question Helot Co develops and sells computer games. It is well known for launching innovative and interactive role-playing games and its new releases are always eagerly anticipated by the gaming community. Customers value the technical excellence of the games and the durability of the product and packaging. Helot Co has previously used a traditional absorption costing system and full cost- plus pricing to cost and price its products. It has recently recruited a new finance director who believes the company would benefit from using target costing. He is keen to try this method on a new game concept called Spartan, which has been recently approved After discussion with the board, the finance director undertook some market research to find out customers' opinions on the new game concept and to assess potential new games offered by competitors. The results were used to establish a target selling price of $45 for Spartan and an estimated total sales volume of 350,000 units. Helot Co wants to achieve a target profit margin of 35%. The finance director has also begun collecting cost data for the new game and has projected the following: Production costs per unit $ Direct material 3.00 Direct labour 2.50 5.05 Direct machining Set-up Inspection & testing 0.45 4.30 $'000 Total non-production costs Design (salaries & technology) Marketing consultants 2,500 1,700 Distribution 1,400 You report directly to the new finance director. He has asked you to prepare some analysis ahead of his next meeting with the Board Required: i) Explain the main steps in deriving a target cost. ii) Calculate the forecast cost gap for the new game. iii) Suggest actions that can be taken to close any cost gap on Helot Co's computer games. Helot Co is thinking about expanding its business and introducing a new computer repair service for customers. The board has asked if target costing could be applied to this service. iv) Discuss whether target costing is an appropriate method of costing for provision of a service