Case 10-3 Target Costing Nebraska Toaster Company Aftab Usmani Alex Derevin Carla Daniels Shantanu Singh

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

Target Cost Target Cost =Sales Price - 0.2* Sales Price

Value Chain Analysis Toaster Oven Life Cycle Target (In $) Current Gap R&D 4.00 4.20 0.20 Manufacturing 9.00 12.00 3.00 Selling 1.60 1.80 Shipping (outsourced) 0.90 1.00 0.10 General Admin 0.50 0.70 Total 16.00 19.70 3.70

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 Temperature Control Timer Body Design 5.10 43 Crumb & Grease Catcher 1.10 9 Total 12.00 100%

Requirement Analysis Customer Requirements Customer Ranking % of Score Toasts & Grill Property 5 28 Size 3 17 Speed of toasting or grilling Toaster Oven Capacity 2 11 Appearance 1 Easy to Clean 4 22 Total 18 100

Functional Performance Analysis (Percentage) Heating Unit Display Light Lever Spring Coil Temp. Control & Timer Body Design Grease Catcher Total Toasts Properly 50% 20% 10% 100% Size Speed of Toasting 70% Toaster Capacity 30% 5% 60% Appearance 80% Easy to Clean 45%

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 0.028 Size 0.085 Speed of Toasting 0.119 0.017 0.034 Toaster Capacity 0.033 0.0055 0.066 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

Rank of Product Function

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 0.43 0.09 Target Cost Index (A/B) 2.435 0.077 1.23 1.12 0.9 0.75 0.18

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 0.5 5 Size 1.5 3 Speed of Toasting 2.1 0.3 0.6 Toaster Capacity 0.1 1.2 2 Appearance 0.2 0.8 Easy to Clean 1.8 4 Total Score 8.7 0.2 1.1 1 0.8 5.9 0.3 18 Total $ 2.4 1.6 0.6 5.1 1.10 Score/$ 3.625 0.125 1.83 1.67 1.33 1.16 0.27

Rank of Product Function