Wild Birds in the Garden, Inc., produces a full line of bird feeders and other accessory items for backyard bird enthusiasts. The company has completed the design of a new baffle to prevent squirrels from raiding its bird feeders. The new baffle features innovative graphite-based coating that makes the surface too slippery for a squirrel to grasp. Because of this feature, the company estimates that the baffle can be sold at a premium price of $15 per unit. The design team assembled the following information.
The company desires a 40% margin to cover overhead, other costs, and a return on capital.
Required:
a. What is the company's target cost?
b. What is the current estimated cost to make the baffle?
c. What is the cost gap?
d. The design team has suggested that the baffle could be produced in a smaller size. This would reduce the quantity of sheet metal needed to 2.5 square feet per unit. The amount of graphite used could also be reduced to 0.5 ounces. These changes would make the baffle slightly less resistant to squirrels and too small to fit the largest of the company's bird feeders. If these changes are implemented, will the baffle meet its target cost? How do you think the suggested changes would affect the baffle's value proposition?

Question

Wild Birds in the Garden, Inc., produces a full line of bird feeders and other accessory items for backyard bird enthusiasts. The company has completed the design of a new baffle to prevent squirrels from raiding its bird feeders. The new baffle features innovative graphite-based coating that makes the surface too slippery for a squirrel to grasp. Because of this feature, the company estimates that the baffle can be sold at a premium price of $15 per unit. The design team assembled the following information.
  The company desires a 40% margin to cover overhead, other costs, and a return on capital.
Required: 
a. What is the company's target cost?
b. What is the current estimated cost to make the baffle?
c. What is the cost gap?
d. The design team has suggested that the baffle could be produced in a smaller size. This would reduce the quantity of sheet metal needed to 2.5 square feet per unit. The amount of graphite used could also be reduced to 0.5 ounces. These changes would make the baffle slightly less resistant to squirrels and too small to fit the largest of the company's bird feeders. If these changes are implemented, will the baffle meet its target cost? How do you think the suggested changes would affect the baffle's value proposition?

Quizplus · Accepted Answer

The Answer of Wild Birds in the Garden, Inc., produces a full line of bird feeders and other accessory items for backyard bird enthusiasts. The company has completed the design of a new baffle to prevent squirrels from raiding its bird feeders. The new baffle features innovative graphite-based coating that makes the surface too slippery for a squirrel to grasp. Because of this feature, the company estimates that the baffle can be sold at a premium price of $15 per unit. The design team assembled the following information.
  The company desires a 40% margin to cover overhead, other costs, and a return on capital.
Required: 
a. What is the company's target cost?
b. What is the current estimated cost to make the baffle?
c. What is the cost gap?
d. The design team has suggested that the baffle could be produced in a smaller size. This would reduce the quantity of sheet metal needed to 2.5 square feet per unit. The amount of graphite used could also be reduced to 0.5 ounces. These changes would make the baffle slightly less resistant to squirrels and too small to fit the largest of the company's bird feeders. If these changes are implemented, will the baffle meet its target cost? How do you think the suggested changes would affect the baffle's value proposition?