Target Costing. Toolmakers, Inc., produces table saws. The marketing department has identified a market for a specific type of table saw that Toolmakers does not currently produce, and expects to be able to sell each saw for $800. Management requires a profit of 60 percent of the selling price.

Required:

a. Determine the highest cost (target cost) management would be willing to accept to produce this product.

b. Describe the four steps of target costing, and identify what Toolmakers would do next if it cannot make the product at or below the target cost.