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E8-1 Jarlsberg Cheese

Price: $1.99

E8-1 Jarlsberg Cheese Company has developed a new cheese slicer called Slim Slicer. The
company plans to sell this slicer through its catalog, which it issues monthly. Given market
research, Jarlsberg believes that it can charge $20 for the Slim Slicer. Prototypes of the
Slim Slicer, however, are costing $22. By using cheaper materials and gaining efficiencies
in mass production, Jarlsberg believes it can reduce Slim Slicer’s cost substantially. Jarlsberg
wishes to earn a return of 30% of the selling price.

(a) Compute the target cost for the Slim Slicer.
(b) When is target costing particularly helpful in deciding whether to produce a given

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