1. Case 10-3 Target Costing Nebraska Toaster Company
Aftab Usmani
Alex Derevin
Carla Daniels
Shantanu Singh

2. Case Details Wants to introduce new product : A Toaster Oven
Want to match the price on basic toaster
Market price : $20
Wants to earn profit of 20% on sales price
Customer requirements are identified
Toasts properly
Size
Speed of toasting
Toaster capacity
Appearance
Easy to clean

3. Target Cost Target Cost =Sales Price - 0.2* Sales Price

4. Value Chain Analysis Toaster Oven
Life Cycle
Target
(In $)
Current
Gap
R&D
4.00
4.20
0.20
Manufacturing
9.00
12.00
3.00
Selling
1.60
1.80
Shipping
(outsourced)
0.90
1.00
0.10
General Admin
0.50
0.70
Total
16.00
19.70
3.70

5. Functional Cost Analysis
Component
Current Cost
(In $)
% of Cost
Heating Unit
2.40 20
Display Light
1.60 13
Level
0.60 5
Spring Coil
Temperature Control Timer
Body Design
5.10 43
Crumb & Grease Catcher
1.10 9
Total
12.00
100%

6. Requirement Analysis Customer Requirements Customer Ranking % of Score
Toasts & Grill Property 5 28
Size 3 17
Speed of toasting or grilling
Toaster Oven Capacity 2 11
Appearance 1
Easy to Clean 4 22
Total 18
100

7. Functional Performance Analysis (Percentage)
Heating Unit
Display Light
Lever
Spring
Coil
Temp. Control
& Timer
Body Design
Grease Catcher
Total
Toasts Properly
50%
20%
10%
100%
Size
Speed of Toasting
70%
Toaster Capacity
30% 5%
60%
Appearance
80%
Easy to Clean
45%

8. Functional Performance Analysis (Importance Index)
Heating Unit
Display Light
Lever
Spring
Coil
Temp. Control
& Timer
Body Design
Grease Catcher
Toasts Properly
0.14
0.056
0.028
Size
0.085
Speed of Toasting
0.119
0.017
0.034
Toaster Capacity
0.033
0.0055
0.066
Appearance
0.01
0.04
Easy to Clean
0.11
0.099
0.011
Importance Index
0.487
0.01
0.0615
0.056
0.045
0.324
0.0165

9. Rank of Product Function

10. Target Cost Index Function Heating Unit Display Light Lever
Spring Coil
Temp. Control & Timer
Body Design
Grease Catcher
Importance Index (A)
0.487
0.01
0.0615
0.056
0.045
0.324
0.0165
% of Target Cost (B)
0.2
0.13
0.05
0.43
0.09
Target Cost Index (A/B)
2.435
0.077
1.23
1.12
0.9
0.75
0.18

11. Functional Performance Analysis (Requirement Score)
Heating Unit
Display Light
Lever
Spring
Coil
Temp. Control
& Timer
Body Design
Grease Catcher
Total Score
Toasts Properly
2.5 1
0.5 5
Size
1.5 3
Speed of Toasting
2.1
0.3
0.6
Toaster Capacity
0.1
1.2 2
Appearance
0.2
0.8
Easy to Clean
1.8 4
Total Score
8.7
0.2
1.1 1
0.8
5.9
0.3 18
Total $
2.4
1.6
0.6
5.1
1.10
Score/$
3.625
0.125
1.83
1.67
1.33
1.16
0.27

12. Rank of Product Function