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Chapter 4

Q. 4.3

The marketing department of Targa International identifies a new lightweight carry-on bag for which customers are willing to pay £100. Required features are spinner wheels, durability, digital locks, and telescopic handles. The bag must also meet airline size limits and customer demand for style and functionality. Targa’s normal margin is 40 percent of the sales price. What is the carry-on bag’s target cost?


Verified Solution

The margin is (0.40)(£100), or £40. Therefore, the target cost is £100 – £40, or £60. Targa must design a carry-on bag that can be produced at a maximum cost of £60. If Targa’s current cost is greater than £60, then it can take steps to re-design the carry-on bag and/or production process to reduce the cost without sacrificing customer value. If it cannot do so, Targa will not be competitive in this market.