Question

EFI has a basic customer relationship management (CRM) system in place, and one of its features is the ability to gather and analyze customer feedback very efficiently. Recently, a number of customers have inquired about EFI making a line of skis for young children who are just starting out on the ski hills. Further research obtained through customer surveys indicates that a significant portion of the existing clientele have small children or grandchildren and up to 10% of the existing clientele would likely purchase EFI skis for a child in the family if the following conditions applied: The skis have training features that could be removed once an appropriate skill level has been reached. The skis do not cost more than $1,000 per pair. The skis have the same level of quality and durability as skis EFI produces for adults. Most customers surveyed were willing to forego some of the individual engineering on the skis and use a standard setup, as their children would not yet have developed their own unique style and would need a solid all-around performing ski. Giulio and the board have decided to explore the idea for a line of children's skis, which they would call Kinderskis. EFI will pursue the Kinderskis product line as long as it can be expected to generate a 30% profit margin on sales, as this is the level needed to meet EFI's required return on investment (ROI), based on the level of anticipated demand. The design team has determined that the investment needed to adjust the production processes and equipment would be fairly minimal, but the new designs would require an investment of about $400,000. Once the designs are complete, each pair of skis could be produced for about $850. The current design plan calls for the following specifications to be designed into the Kinderskis:

top quality materials, equivalent to those used in the adult ski lines

varying levels of rigidity and edge shapes to allow customers to choose skis based on the snow type usually skied (powder versus groomed runs)

a removable attachment that holds the tips together while the child learns to control the skis

custom artwork to signify that the skis are part of the EFI brand

Required:

b) How should EFI proceed in light of information obtained from the target costing process? Consider investment, cost, and demand factors, and justify your guidance to EFI by relating the target costing perspective to EFI's mission, vision, and values. (13 marks)