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Suppose you have just started a business to manufacture your latest invention, smartwatch gadget. You estimate that after a few years on the market these
Suppose you have just started a business to manufacture your latest invention, smartwatch gadget. You estimate that after a few years on the market these gadgets will sell for about $500. This estimate takes account of the introduction of similar devices by your competitors. Furthermore, you want to make a profit of $100 on each gadget sold. Required: a. What is the target cost for the smartwatch gadget? (Show all working) (3 marks) b. What is the target profit? (1mark) c. What is the target price? (1mark) d. Suppose your engineers and management accountants conclude that your design of the smartwatch gadget will result in a unit cost of $460. How can you use the concept of target costing to help achieve your objective. (5marks) Source: Adapted from Smith, K. L., Thorne, FI., Smith, D., and Hilton, R. W. (2017) Management Accounting Information for Creating and Managing Value, 8th edition, McGraw-Hill Book Company
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