Silver Spoons makes silverware and stainless steel eating utensils. It is considering adding a new line, a silver-clad stainless steel line that would give the look and feel of silver but cost considerably less and have a heavier gauge, something customers desire. The design team has put together the following information for you about a four-place setting service.

Since this is such a high-quality product, Silver Spoons believes it can command the premium price of $240 for four place settings (16 pieces). The company wants its costs to be 40% less than the price to cover profits and overhead.

The design team notes it can cut very little of the cost. It could reduce the weight of the product by one pound by using less stainless steel. It could also reduce the thickness of the silver coating, eliminating one ounce of silver. If it eliminated the plastic wraps, it could cut labor time in half. Machining time cannot be changed without physically damaging the product.

REQUIRED:

a. What is the company’s target cost?

b. What is the current estimated cost to make the four place settings?

c. What is the cost gap?

d. Using the design team’s suggestions for bringing down the cost, can the setting now meet its target cost?

e. How do you feel about the changes being made to the design? Think about it from the customer’s perspective; that is, the attributes they care most about.

Transcribed Image Text:

Cost Element Amount Needed Cost per Unit Used Stainless stel 3pounds S125 per pound Silver 6 ounces $28.00 per ounce Plastic wrappings Inner packaging S0.01each 1 $0.25 each Outer box 1 $0.30 eoch Labor 20 minutes SIK00 per hour Machine time D minutes $60.00 per hour