Question

ates a commercial plant nursery where it propagates plants tor garden centers Garden Away opera and the variable costs for the poting soil container, label, seedling, and quality plants to garden centers for $3.70 each Garden centers then mark them up to sel to the public for $8 10 $10 Away has $5,25 milion in assets. Its yearly fxed costs are $668,500. labor for each gallon-sized plant total $1 20. Garden Away's volume is 490,000 unts, Competitors offer the same Requirement 1, Garden Away owners want to earn a 12% return on the company's assets what is Garden Awa Calculate the target full cost for Garden Away. Select the formuta labels Less: Target ful cost Requirement 2. Given Garden Away's current costs, will ts owners be able to achieve their t your analysis Total full cost Garden Aways current tonan" costs of $ ts target tu" cost Garden Away meet the owners profit expectations that Garden Away has identfied ways to cut its variable costs to $1.05 per unt. What is its new target fixed cost? wis this decrease in variable costs allow the company to achieve its target profit? Show your analysis Target futl cost Less Reduced kevel of variable costs New target fuxed costs tget prot without han to take any oher cost t h By reducing vanuae co to $1,0,Garden Away be abike to achieve its target profnt without having to take any other cost The new target fixed cost is cutting measures. Choose from any list or enter any Garden Away has $5 25 milon n assets its yearty fxed costs are $668,500, and the vanable costs for the potning sol container, label, seedling, and labor tor each ga ny pants oen ce for $3 70 each Garden centers then mark them up to sell to the public for $8 to $10, depending on the type of gáans offer Read the repuitements mees the owers prott expectations of plant that Garden Away has identifhed ways to cut its variable costs to $1 05 per unit. What is its new target fxed cost? wi this decrease in variable costs allow the achieve its target pront? Show your analysis Target full cost Less, Reduced level of variable costs New target txed costs The new target foxed cost is be able to achieve its target proft without having to take any other cost cutting measures t4. Garoen Away started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nursernies Garden Away doesnt expect volume to be but it hopes to gain more control over pricing if Garden Away has to spend $53, 900 this year to advertise and its variable costs continue to be $1.05 per unit, what will its cost-plus price be? Do you think Garden Away will be able to sell its plants to garden centers at the cost-plus price? why or why nor? its cost-plus price. (Round the cost-plus price to the nearest cent ) Plus Target revenue Divided by Cost-plus price per unt Consumers will be more wiling to pay the cost-plus price if the marketing campaign is

Answer 1

$5,250,000.00 S 668,500.00 Total Assets Annual fixed costs Variable cost each gallon 1.20 Units produced 490,000 3.70 Competitors price per unit Requirement 1 Requirement 2 Annual fixed costs 12% Expected return on assets 668,500.00 S 588,000.00 S 630,000.00 Return on assets Variable Cost 5.250.000 * 12% 490,0001.20 $1,813,000.00 $ 1,256,500.00 Revenue at current market price Total Cost 490,000 units $3.70 per unit] Less. Desired profit @ 12% Target full cost S (630,000.00 $ 1,183,000.00 Total cost is more than the target cost So the owners will not be able to achieve their target profit Requirement 3 $1,183,000.00 1.05 Target full cost New variable cost per unit Units produced 490,000 Less: Reduced level of variable cost 514,500.00 S 668,500.00 New target fixed cost The new target fixeed cost is $668,500. By reducing variable costs to $1.05, Garden Away will be able to achieve its target profit without having to take any other cost cutting measures Requirement 4 S 668,500.00 Current fixed costs Add: Additional cost on advertisement $ 53,900.00 S 514,500.00 Add: Variable cost at current level $ 1,236,900.00 Total costs [A] Add: Return @ 12% [$5.25 million * 12%)| $ 630.000.00 $ 1,866,900.00 Target revenue [B] Total number of units 490,000 3.81 Cost plus price per units [B 490,000 $ Consumers will be more willing to pay the cost plus price of the marketing campaign is effective Otherwise Garden Away may be considered a generic nursery