Green Valley Coffee Company has designed a new coffee maker for its existing product line. The company estimates that the unit cost to produce the machine will be $40. This is within its target cost of $48. A pilot production run, however, results in an actual unit cost of $46. Green Valley Coffee faces a cost gap of $6.

Question

Quizplus · Accepted Answer

The cost gap is calculated as the difference between the target cost and the actual cost. Since the target cost is $48 and the actual cost is $46, there is no cost gap; instead, the actual cost is within the target, resulting in a $2 margin below the target cost, not a gap.

Green Valley Coffee Company Has Designed a New Coffee Maker