Despero Cheese Company has developed a new cheese slicer called Thin Slicer. The company plans to sell this slicer through its catalog, which it issues monthly. Given market research, Grover believes that it can charge $16 for the Thin Slicer. Prototypes of the Thin Slicer, however, are costing $22. By using cheaper materials and gaining efficiencies in mass production Despero believes it can reduce Thin Slicer's cost substantially. Despero wishes to earn a return of 20% of the selling price.
Instructions
(a) Compute the target cost for the Thin Slicer.
(b) When is target costing particularly helpful in deciding whether to produce a given product?