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