Case 10-3 Target Costing Nebraska Toaster Company

1
Case 10-3 Target CostingNebraska Toaster Company

• Aftab Usmani
• Alex Derevin
• Carla Daniels
• Shantanu Singh

2
Case Details

• Wants to introduce new product A Toaster Oven
• Want to match the price on basic toaster
• Market price 20
• Wants to earn profit of 20 on sales price
• Customer requirements are identified
• Toasts properly
• Size
• Speed of toasting
• Toaster capacity
• Appearance
• Easy to clean

3
Target Cost

• Target Cost Sales Price - 0.2 Sales Price
• Target Cost (1-0.2) 20 16

4
Value Chain AnalysisToaster Oven
Life Cycle Target (In ) Current (In ) Gap (In )
RD 4.00 4.20 0.20
Manufacturing 9.00 12.00 3.00
Selling 1.60 1.80 0.20
Shipping (outsourced) 0.90 1.00 0.10
General Admin 0.50 0.70 0.20
Total 16.00 19.70 3.70
5
Functional Cost Analysis
Component Current Cost (In ) of Cost
Heating Unit 2.40 20
Display Light 1.60 13
Level 0.60 5
Spring Coil 0.60 5
Temperature Control Timer 0.60 5
Body Design 5.10 43
Crumb Grease Catcher 1.10 9
Total 12.00 100
6
Requirement Analysis
Customer Requirements Customer Ranking of Score
Toasts Grill Property 5 28
Size 3 17
Speed of toasting or grilling 3 17
Toaster Oven Capacity 2 11
Appearance 1 5
Easy to Clean 4 22
Total 18 100
7
Functional Performance Analysis (Percentage)
Heating Unit Display Light Lever Spring Coil Temp. Control Timer Body Design Grease Catcher Total
Toasts Properly 50 20 20 10 100
Size 50 50 100
Speed of Toasting 70 10 20 100
Toaster Capacity 30 5 60 5 100
Appearance 20 80 100
Easy to Clean 50 45 5 100
8
Functional Performance Analysis(Importance Index)
Heating Unit Display Light Lever Spring Coil Temp. Control Timer Body Design Grease Catcher
Toasts Properly 0.14 0.056 0.056 0.028
Size 0.085 0.085
Speed of Toasting 0.119 0.017 0.034
Toaster Capacity 0.033 0.0055 0.066 0.0055
Appearance 0.01 0.04
Easy to Clean 0.11 0.099 0.011
Importance Index 0.487 0.01 0.0615 0.056 0.045 0.324 0.0165
9
Rank of Product Function
10
Target Cost Index
Function Heating Unit Display Light Lever Spring Coil Temp. Control Timer Body Design Grease Catcher
Importance Index (A) 0.487 0.01 0.0615 0.056 0.045 0.324 0.0165
of Target Cost (B) 0.2 0.13 0.05 0.05 0.05 0.43 0.09
Target Cost Index (A/B) 2.435 0.077 1.23 1.12 0.9 0.75 0.18
11
Functional Performance Analysis(Requirement
Score)
Heating Unit Display Light Lever Spring Coil Temp. Control Timer Body Design Grease Catcher Total Score
Toasts Properly 2.5 1 1 0.5 5
Size 1.5 1.5 3
Speed of Toasting 2.1 0.3 0.6 3
Toaster Capacity 0.6 0.1 1.2 0.1 2
Appearance 0.2 0.8 1
Easy to Clean 2 1.8 0.2 4
Total Score 8.7 0.2 1.1 1 0.8 5.9 0.3 18
Total 2.4 1.6 0.6 0.6 0.6 5.1 1.10
Score/ 3.625 0.125 1.83 1.67 1.33 1.16 0.27
12
Rank of Product Function