SaskPlastics makes plastic parts for other manufacturing companies. SaskPlastics has an ABC system for its production, marketing, and customer service functions. The company uses target costing as a strategic decision-making tool. One of the SaskPlastics product lines—consumer products—has over 100 individual products with life cycles of less than three years. This means that about 30 to 40 products are discontinued and replaced with new products each year. SaskPlastics top management has established the following tool to be used by the target-cost team for evaluating proposed new products: 

The following operational and ABC data are for four proposed new products: 

Top management has set a desired contribution to cover unallocated value-chain costs, taxes, and profit of 40 percent of the estimated market price. 

Prepare a schedule that shows, for each proposed new product, the target cost, estimated cost using existing technology, and any required cost reduction as a percentage of the estimated market price. Use the evaluation tool to make a decision regarding the four proposed new products

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Required Cost Reduction (RCR) as a Percentage of Market Price Action Release to production Release to production and set kaizen improvement RCR 0% 0 < RCR 5% plan Product and process redesign 5% < RCR 25% Abandon subject to top management review and approval RCR > 25% Estimated Number of Driver Units over Product Life Cycle Cost per Driver C- C- C- Unit Value-Chain C- Function 200472 200473 200474 200475 Production $1.60 per kilogram $1,015 per setup Direct materials 2,000 1,000 4,000 800 Setup/maintenance 10 4 12 5 $370 per machine-hour Processing 20 12 32 12 $860 per order $162 per sales Marketing 30 10 50 16 Customer service 55 35 20 28 call Estimated life-cycle 2,000 1,400 4,000 600 demand Estimated market $39 $28 $35 $50 price per unit