Danish Interiors, Ltd., manufactures easy-to-assemble wooden furniture for home and office. Management is considering modification of a table to make it more attractive to individuals and businesses that buy products through outlets such as Office Max, Office Depot, and Staples stores. The table is small, can be used to hold a computer printer or fax machine, and has several shelves for storage.
The company’s marketing department surveyed potential buyers of the table regarding five proposed modifications. The 200 survey participants were asked to evaluate the modifications by using a five-point scale that ranged from 1 (strongly disagree) to 5 (strongly agree). Their responses, along with Danish Interiors’ related unit costs for the modifications, follow.

The table currently costs $192 to produce and distribute, and Danish Interiors’ selling price for this unit averages $240. An analysis of competitive tables in the marketplace revealed a variety of features, with some models having all of the features that management is considering and other models having only a few. The current manufacturers’ selling prices for these tables averages $285.

1. Why is there a need in target costing to
(a) Focus on the customer
(b) Have a marketing team become involved with product design?
2. Danish Interiors’ marketing team will evaluate the survey responses by computing a weighted-average rating of each of the modifications. This will be accomplished by weighting (multiplying) the point values (1, 2, etc.) by the frequency of responses, summing the results, and dividing by 200. Rank the popularity of the five modifications using this approach.
3. Management desires to earn approximately the same rate of profit on sales that is being earned with the current design.
a. If Danish Interiors uses target costing and desires to meet the current competitive selling price, what is the maximum cost of the modified table?
b. Which of the modifications should management consider?
4. Assume that Danish Interiors wanted to add a modification or two that you excluded in your answer to requirement (3 b). What process might management adopt to allow the company to make its target profit for the table? Brieflyexplain.

  • CreatedApril 22, 2014
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