# FNPT target costing

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Registered Posts: 144 Dedicated contributor 🦉
can someone show the calculation of the following pls?
sales demand is expected to average 8000 unit @ a silling price of £12.00 per unit
labour required 12 minute @ £18.00 per hour
Total production over head is £16000 per month
Profit gross margin requires at least 25%

do show calculation

Material was 3.40 but i don,t know how they got that and maximum cost per kg

• Registered Posts: 2 New contributor 🐸
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i think its like this
sp =£12.00 so cost price is 100/125 of this which is £9.60
labour is 1/5 of an hour so 18/5= £3.60
fixed oh is 16000/8000 =£2.00
so cost of material per unit is 9.60-3.60-2.00=£4.00
if the material is £3.40 per kg you need 4/3.40 of it which is 1.176 of a kg per unit
hope this helps
• Registered Posts: 585 Epic contributor 🐘
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Nick Creal wrote: »
i think its like this
sp =£12.00 so cost price is 100/125 of this which is £9.60
labour is 1/5 of an hour so 18/5= £3.60
fixed oh is 16000/8000 =£2.00
so cost of material per unit is 9.60-3.60-2.00=£4.00
if the material is £3.40 per kg you need 4/3.40 of it which is 1.176 of a kg per unit
hope this helps

I am in agreement with the above explanation except for:

SP = £12 = Margin is 25% ie 25% of £12 = £3 therefore SP excluding profit = £9

Material costs will be £9 - £3.6 - £2 = £3.40 available to purchase material.

Target costing is working back wards
• Registered Posts: 144 Dedicated contributor 🦉
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Re: Target costing

Thanks
• Registered Posts: 81 Epic contributor 🐘
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0) price sold is £40
0) 10,000 units at a price of £40
0) fixed cost £120,000 per year
0) Labour requirement is 20minutes at a cost of £18.00 per hour
0) margin is 45%
0) Material is 200 grams per unit

Sales £40.00
Margin £18.00
Total cost £22.00
Fixed £12.00
Labour £6.00 (20X18/60= 6)
Maximum material cost per unit answer is 4 but to get you do you 22-12-6=4 or is there another way?

But for target cost per kilogram i dont know how to do it, would it be 10,000 unit divide by 200 grams then dvide it by 1000 from grams to kg giving you 20. 10,000/200= 50, 1000/50= £20.00
• Registered Posts: 782
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Your answers are all correct. For the max material cost per unit, the way you've calculated it is fine.

For the target cost per kg, you know the target cost is £4 per unit (which needs 200g of material), there are 5 x 200g's (£4) in 1kg, so £4x5 is your target cost per kg - £20. Your method gets to the right answer but not for the right reasons.