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13-3 Nebraska Toaster Company: Target Costing Case Thomas W. Lin Through market research and competitor analysis Nebraska Toaster Company has found a market for toaster oven new product that is not currently being produced by competitors. This new toaster can toast bagels or regular toast bread or grill sausages. It will be targeted for a consumer group of young family households. The customer requirements and important features to the consumer have been identified and the Nebraska Toaster Company will focus on these for the toaster oven design. The criteria are |Toasts properly Size Speed of toasting Toaster capacity Appearance Easy to clean Nebraska Toaster Company wants to competitively match the price toaster oven to basic toasters; the competitive market price is $20.00. Nebraska Toaster Company wants to earn a profit of 20 % of sales price Relevant cost information for the company follows in Table 1. Most of the life cycle activities are done inside the firm, but shipping is outsourced. Table 1 Life Cycle and Value Chain Analysis Value Chain Inside Outside Total Life Cycle Target Current Gap Target Current Gap Target Current Gap R&D $ 4.00 $ 4.20 $ 0.20 $ 4.00 $ 4.20 $0.20 (25%) (25%) Manufacturing 9.00 12.00 3.00 9.00 12.00 3.00 (56%) (56%) Selling 1.60 1.80 0.20 1.60 1.80 0.20 (10%) (10%) Shipping $ 0.90 $ 1.00 $0.10 0.90 1.00 0.10 (6%) (6%) General Adm. 0.50 0.70 0.20 0.50 0.70 0.20 (3%) (3%) Total $ 15.10 $ 18.70 $ 3.60 $ 0.90 $ 1.00 $ 0.10 $16.00 $19.70 $3.70 (94%) (6%) The toaster company through value engineering and continuous improvement plans to determine a way to reach the target cost by looking at the products life cycle and its value chain activities to determine where to reduce costs. Step 1-- Product Functional Cost analysis Nebraska Toaster Company plans to implement functional analysis to target areas of cost reduction. Here the company breakdowns the current $12.00 manufacturing costs (from Table 1 "Manufacturing" row and "Total