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Green House operates a commercial plant nursery where it propagates plants for garden centers throughout the region.
Green House has $5,100,000 in assets. Its yearly fixed costs are $650,000​, and the variable costs for the potting​ soil, container,​ label, seedling, and labor for each​ gallon-size plant total $1.90.
Green House's volume is currently 500,000 units. Competitors offer the same​ plants, at the same​ quality, to garden centers for $4.25 each. Garden centers then mark them up to sell to the public for​ $9 to​ $12, depending on the type of plant.Read the requirements
Requirement 1.
Green House's owners want to earn an 11​% return on investment on the​ company's assets. What is
Green House​'s target full product​ cost?
Revenue at current market price ?
Less:Desired profit ?
Target full product cost ?
Requirement 2. Given Green House's current​ costs, will its owners be able to achieve their target​ profit? Begin by calculating Green House's current full product cost.
Current variable costs ?
Plus:Current fixed costs ?
Current full product cost ?
Requirement 3. Assume Green House has identified ways to cut its variable costs to $1.75 per unit. What is its new target fixed​ cost? Will this decrease in variable costs allow the company to achieve its target​ profit?Begin by calculating Green House's new target fixed cost.
Target full product cost ?
Less:Variable costs ?
Target fixed cost ?
Requirement 4.
Green House started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nurseries.
Green House does not expect volume to be​ affected, but it hopes to gain more control over pricing. If Green House has to spend $145,000 this year to advertise and its variable costs continue to be $1.75 per​ unit, what will its​ cost-plus price​ be?
Begin by calculating the​ cost-plus price per unit. ​(Round your answer to the nearest​ cent.)
Current variable costs ?
Plus:Fixed costs ?
Full product cost ?
Plus:Desired profit ?
Target revenue ?
Divided by:Number of units ?
Cost-plus price per unit ?

Respuesta :

Tundexi

Answer:

1. Revenue at current market price    $2,125,000 (500,000 units * $4.25)

    Less: Desired profit                         $561,000 ($51,000,000 * 11%)  

   Target full product cost                   $1,564,000

2. Current variable costs             $950,000 (500,000 units * $1.90)

   Add: Current fixed costs        $650,000

   Current full product cost        $1,600,000

Answer: No, the owner will not be able to meet its desired profits because the above product cost is still more than target cost of $ 1,564,000

3. Target full product cost            $1,564,000

    Less:  Variable costs                  $875,000 (1.75*500,000 units)

    Target fixed cost                       $689,000

Answer: Yes, now the company will be able to meet its target profit because the target Fixed cost calculated above is MORE than actual Fixed Cost of $ 650,000

4. Current variable costs        $875,000

   Add: Fixed costs                 $795,000

      ($650,000 + $145,000)

   Full product cost                  $1,670,000

   Add: Desired profit               $561,000

   ($51,000,000 x 11%)

   Target revenue                      $2,231,000

Cost-plus price per unit  = Target revenue / Number of units

Cost-plus price per unit  = $2,231,000 / 500,000 units

Cost-plus price per unit  = $4.46

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