Culver Cheese Company has developed a new cheese slicer called the Slim Slicer. The company plans to sell this slicer through its monthly catalogue. Given market research, Culver management believes the company can charge $20 for the Slim Slicer. Prototypes of the Slim Slicer, however, are costing $25. By using cheaper materials and gaining efficiencies in mass production, management believes Culver can reduce the Slim Slicer's cost substantially. The company wants to earn a return of 25% of the selling price.
Instructions
(a) Calculate the target cost for the Slim Slicer.
(b) Determine when target costing is particularly helpful in deciding whether to produce a particular product.