QUESTION 4 (25 Marks) Game Power Bhd (GPB) is a manufacturer for computer games, has developed a new game called as the Smart Accountant (SA). This is an interactive 3D game and is the first of its kind to be introduced to the market. GPB has been using a traditional absorption costing system to calculate costs and price its products. The new management accountant believes that this is inappropriate for this company and is arguing for a new approach to be adopted. Required: a) As a management accountant of GPB, discuss the principles of the following techniques and explain how each could have been be applied to SA i. Life cycle costing (7 marks) ii. Target costing (7 marks) GPB is in the process of introducing a new game Cool Lawyer (CL) a few months later. GPB has undertaken market research to study the customers' views on the value of the product and also to obtain a comparison with competitors products. The results of this research have been used to establish a target selling price of RM55 and a projected lifetime volume of 200,000 games. The estimated costs have been developed based on the proposed specification. Manufacturing Cost Direct material Direct labour Direct machinery costs Ordering and receiving Quality Assurance Design cost RM 3.21 4.23 1.12 0.23 4.60 19.80 Non-manufacturing cost Marketing Distribution After-sales service and warranty cost 8.15 3.25 1.60 The target profit margin for CL is 30% of the proposed selling price. Required: b) Calculate the target cost of the CL (4 marks) c) Discuss the implications of the results (3 marks) BBF372/Sept/Oct2014 Page 5 of 6 d) Explain the limitations of target costing for GPB (4 marks)