Question: Cleveland Plastics makes plastic parts for other manufacturing companies Cleveland

Cleveland Plastics makes plastic parts for other manufacturing companies. Cleveland 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 Cleveland’s product lines—consumer products—has over 100 individual products with life cycles of less than 3 years. This means that about 30–40 products are discontinued and replaced with new products each year. Cleveland’s 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% 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 percent of the estimated market price. Use the evaluation tool to make a decision regarding the four proposed new products.

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  • CreatedNovember 19, 2014
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