Chapter 8, Problem 8.1E

Mesa Cheese Company has developed a new cheese slicer called Slim Slicer. The company plans to sell this slicer through its catalog, which it issues monthly. Given market research, Mesa believes that it can charge $20 for the Slim Slicer. Prototypes of the Slim Slicer, however, are costing $22. By using cheaper materials and gaining efficiencies in mass production, Mesa believes it can reduce Slim Sheer’s cost substantially. Mesa wishes to earn a return of 40% of the selling price.

Instructions

(a) Compute the target cost for the Slim Slicer.

(b) When is target costing particularly helpful in deciding whether to produce a given product?