Stela plc manufactures electric car and sells them directly to the public. It currently only sells...

  

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Stela plc manufactures electric car and sells them directly to the public. It currently only sells expensive sports models aimed at the premium end of the market, but it has developed a small city car, the Whizz1, that will be more affordable and therefore aimed at a much wider market. The Whizz 1 project was the idea of Stela's charismatic CEO, Leon Kusm. He decided at the start of the project that the Whizz1 would sell for £17,500 and immediately announced this selling price to the public. Leon then met with the project team designing both the Whizz1 and its production process and explained that they needed to generate a 20% profit margin on the car, giving the team a clear target cost. The project team then worked for 18 months to design the car and how it would be produced. The management accountant in the team helped them estimate the actual cost of production as £15,750. They then looked at ways to reduce the cost of production. Ideas that they implemented included: • Reducing expected non-value added costs such as material storage and movement, scrap and rework • Removing some of the car's features, such as parking assistance and rapid charging. The team recognised that these features would be highly valued by customers but they needed to be removed to meet the target cost At the end of the design phase the project team met with Leon and told him that they had managed to reduce the estimated actual cost of production to £14,500. Leon decided in the meeting that the Whizz1 would go into production as soon as possible. The Marketing Manager, who is one of the members of the project team, movement, scrap and rework • Removing some of the car's features, such as parking assistance and rapid charging. The team recognised that these features would be highly valued by customers but they needed to be removed to meet the target cost At the end of the design phase the project team met with Leon and told him that they had managed to reduce the estimated actual cost of production to £14,500. Leon decided in the meeting that the Whizz1 would go into production as soon as possible. The Marketing Manager, who is one of the members of the project team, suggested that they should consider also using target costing for one of their existing models, the Sport-E, as she believed it would be just as beneficial as for the Whizz1. Required a) Assess to what extent Stela followed a targeting costing approach for the Whizz1. (Maximum 325 words) (13 marks) b) Briefly discuss whether the use of target costing would be appropriate for the Sport-E. (Maximum 150 words) (6 marks) c) Discuss whether target costing could be considered an Environmental Management Accounting technique. (Maximum 150 words) (6 marks) Stela plc manufactures electric car and sells them directly to the public. It currently only sells expensive sports models aimed at the premium end of the market, but it has developed a small city car, the Whizz1, that will be more affordable and therefore aimed at a much wider market. The Whizz 1 project was the idea of Stela's charismatic CEO, Leon Kusm. He decided at the start of the project that the Whizz1 would sell for £17,500 and immediately announced this selling price to the public. Leon then met with the project team designing both the Whizz1 and its production process and explained that they needed to generate a 20% profit margin on the car, giving the team a clear target cost. The project team then worked for 18 months to design the car and how it would be produced. The management accountant in the team helped them estimate the actual cost of production as £15,750. They then looked at ways to reduce the cost of production. Ideas that they implemented included: • Reducing expected non-value added costs such as material storage and movement, scrap and rework • Removing some of the car's features, such as parking assistance and rapid charging. The team recognised that these features would be highly valued by customers but they needed to be removed to meet the target cost At the end of the design phase the project team met with Leon and told him that they had managed to reduce the estimated actual cost of production to £14,500. Leon decided in the meeting that the Whizz1 would go into production as soon as possible. The Marketing Manager, who is one of the members of the project team, movement, scrap and rework • Removing some of the car's features, such as parking assistance and rapid charging. The team recognised that these features would be highly valued by customers but they needed to be removed to meet the target cost At the end of the design phase the project team met with Leon and told him that they had managed to reduce the estimated actual cost of production to £14,500. Leon decided in the meeting that the Whizz1 would go into production as soon as possible. The Marketing Manager, who is one of the members of the project team, suggested that they should consider also using target costing for one of their existing models, the Sport-E, as she believed it would be just as beneficial as for the Whizz1. Required a) Assess to what extent Stela followed a targeting costing approach for the Whizz1. (Maximum 325 words) (13 marks) b) Briefly discuss whether the use of target costing would be appropriate for the Sport-E. (Maximum 150 words) (6 marks) c) Discuss whether target costing could be considered an Environmental Management Accounting technique. (Maximum 150 words) (6 marks)

Answer rating: 100% (QA)

Answer 1 Target cost accounting isnt simply a way of cost accounting however rather a management technique whereby costs area unit determined by market conditions taking into consideration many factor... View the full answer