Page 40 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Chapter 3
Standard Costing
 A push system: a standard cost per 
unit (onto which a mark-up is
added).
 An internal tool in mass production
environments that do not
emphasise continual improvement.
 A cost control technique.
 A reactive technique – the selling
price of a new product will be
determined by estimating its
standard cost and adding the
required profit margin to the cost.
Illustrations and further practice
Now read the ‘Target costs and standard costs’ illustration from Chapter 3, and
attempt example 1 ‘Target Costing’.
34
Target Costing
A pull system that requires
understanding of market demand
and competition, so that the price
required to achieve a target market
share or sales level can be set.
 Driven by external market prices
and may not be attainable in the
short term.
 A cost reduction activity.
 A proactive technique that starts
before the design of the product is
formalised. Once this target price
has been determined, a required
long-term profit margin is agreed. It
I sonly once the target cost has
been agreed that the design team
can begin their work. Our products
must be designed with a pre-
determined cost ceiling.