Nintendo Co develops and sells computer games. It is well known for launching innovative and interactive role-playing games and its new releases are always eagerly anticipated by the gaming community. Customers value the technical excellence of the games and the durability of the product and packaging. Nintendo Co has previously used a traditional absorption costing system and full cost-plus pricing to cost and price its products. It has recently recruited a new finance director who believes the company would benefit from using target costing. He is keen to try this method on an new game concept called Spartan, which has been recently approved.
After discussion with the board, the Finance Director undertook some market research to find out customers’ opinions on the new game concept and to assess potential new games offered by competitors. The results were used to establish a target selling price of N$45 for Spartan and an estimated total sales volume of 35000 units. Nintendo Co wants to achieve a target profit margin of 35%.
The finance director has also begun collecting cost data for the new game and has projected the following
Required: What is the forecast cost gap for the new game (to two decimal places)?
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