Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 10

Target Costing Quality Function Deployment Ranger Yacht manufactures a line of family cruiser/ racing sailboats. The boats are well-known for their quality, safety, and performance. Ranger hired Matthew Perry, a well-known sailboat designer and racer, to design a new sailboat, the M33. The M33 will have advanced materials in the hull and rigging to enhance the safety and performance of the boat, and also to improve its overnight comfort. Safety and comfort are the two most important boat-buying criteria of Ranger’s customers, rated at 33 percent and 32 percent respectively, on a 100 point scale. The other two criteria are performance (20 percent) and styling (15 percent). The overall length of the boat is about 33 feet; its two sleeping areas have room for five or six people. Ranger projects a sale price of approximately $200,000 and estimates the costs of manufacturing the M33 as shown in Table 1.

Table 1

Component	Target Cost	Percentage of Total
Hull and keel	$36,000	30%
Standing rig	18,000	15
Sails	20,000	1 7
Electrical	16,000	13
Other	30,000	25
		100%

A team of engineers and sales managers studied the projected cost and was able to identify how each component of the planned boat contributed to satisfying the customers’ criteria. The results of this study, based on careful estimates, is shown in Table 2. For example, the estimates show that 30 percent of the customers’ desire for safety is satisfied by the construction of the hull and keel, another 30 percent by the standing rigging.

Table 2

	Criteria
Component	Safety	Styling	Performance	Comfort
Hull and keel	30%	40%	50%	30%
Standing rig	30	20	20	10
Sails	10	10	30	10
Electrical	20	10	—	—
Other	1 0	20	—	50
	100%	100%	100%	100%

Required

1. Using the information in Table 2 developed by the team of engineers and sales managers, together with the customer criteria, determine which components of the boat are most important to customers, and why.

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2. Take your findings in requirement 1 and compare them against the target cost figures in Table 1. What conclusions can you draw from this comparison?

Step 1 of 4

1. Components importance based on customer’s desire:-

The boat has various components like Hull and keel, Standing Rig, sails, Electrical and other components.

However on basis of survey performed by the Engineer’s and sales team it has been found that there are various criteria been established in determining the component needs to be manufactured by the entity.