ACCA Performance Management (F5) Certification Practice Exam

Which of the following is not a problem of target costing in service industries?

1. Intangibility

2. Simultaneity

3. Perishability

4. High employee turnover

The correct answer is: High employee turnover

In the context of target costing within service industries, the focus is on managing costs to ensure that a service can be delivered at a price that meets market demand while still being profitable. High employee turnover is generally considered less of a direct problem associated with the concept of target costing compared to the other factors listed. The essence of target costing is about aligning cost structures with market expectations for pricing, which can be complicated by factors like intangibility, simultaneity, and perishability. Intangibility refers to the fact that services are not physical products and cannot be touched or stored, making it difficult to measure and manage their costs effectively. Simultaneity highlights that services are often produced and consumed simultaneously, complicating the management of efficiency and cost controls. Perishability underscores that services cannot be stored for later sale, leading to challenges in managing supply and demand effectively. While high employee turnover certainly impacts service delivery and can increase costs related to recruitment and training, it does not directly affect the foundational aspect of target costing, which focuses on cost control relative to the service's market price. Consequently, it can be considered less critical in the context of target costing compared to the inherent attributes of services represented by the other issues listed.