Target Cost of Proposed New Product Timberland is considering manufacturing special crates to be used for shipping new mainframe computers.

Target Cost of Proposed New ProductTimberland is considering manufacturing special crates to be used for shipping newmainframe computers. The company is working with a computer manufacturer who isthinking of using the new crates as a standard component for shipping their computers.Timberland’s marketing manager has determined that mainframe computer buyers would be willing to pay $110 for a crate. The cost to the computer maker of packaging the mainframe in the new crates is $25. In addition, the computer manufacturer requires a 10 percent return on its cost. The highest net selling price that Timberland can charge the computer maker is $74.Research conducted jointly by the computer maker and Timberland’s marketingpersonnel shows that customers want six features. These are: (1) durability, (2) ease ofpacking, (3) protection from damage (4) ease of use (5) compatibility with most brands ofmainframes, and (6) ability to reuse the crates.Based on this research, Timberland’s engineers have come up with a design thatuses four main production modules or processes. Each process has several major subprocesses.A list of the major processes, together with preliminary cost estimates(includes all labor, material and overhead) for manufacturing or buying each process,appears in Table 1 below.In addition to the above, the marketing department estimates that order filling(primarily order processing and delivery) costs would run $4.00 per unit. General andadministrative costs are expected to be $14.00 a unit. Timberland expects to earn a 15percent return on the highest net selling price.Table OneProcess Estimated Current CostsA $9.50B $8.50C $8.00D $46.00Total Costs $72.00Requirement:Prepare a schedule showing the target cost and the current cost.NOTE: Target cost equals selling price – required return of computer company -required return to Timberland.

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