Sunzi Art of War - Toshiba

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(a) Advise the board of director whether Children department should be closed down.
Working 1 - Loss of contribution from Children department
Sales-Variable Costs = RM500,000-RM250,000 =RM250,000
Working 2 – Specific Fixed Costs for Children department
Fixed Costs / 2 = Specific Fixed Costs
= RM300,000 / 2 =RM150,000 RM’000
Loss of Contribution from Children department (W1) (250)
Savings in specific fixed costs from Children department (W2) 150
Incremental Loss if closed down Children department (100)
By closing the Children department, the
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Bhd is willing to pay for the components of the new product required. While, the prices must be reasonable and acceptable to the supplier to make adequate return.

(b) Explain the benefits to Chipmunk Sdn. Bhd. of adopting a target costing approach at such an early stage in the product development process. (4 marks)
Chipmunk Sdn. Bhd. can use target costing to create products that are competitively priced while still maintaining a company’s desired profit margin. It is a tool that can be used on all products within a company. A company would consider Target Costing when it recognizes the need to reduce its price, which may result in a redetermination of the cost structure of the product
Target Costing has many advantages in cost containment and eliminating unneeded costs. It helps make sure every dollar spent in the product is justified.
Forced planning. Target costing ensures proper planning well ahead of actual production and marketing. It considered important in meeting all of the goals, as indicated in 2(c). The results show that the most important benefit of target costing is to assists firms in making the trade-offs between cost and quality and functionality and it helps launch products that improve on previous generations by having reduced prices or improve quality and functionality
Competitive atmosphere. Target costing starts with customer 's study or market study. It cannot work
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