(9 pts) 3. Modern Garden operates a commercial nursery where it grows plants for garden centers throughout the region. Modern Garden has $8,000,000 in assets. Its yearly fixed costs are $2,000,000 and the variable costs for the potting soil, container, label, seedling, and labor for each gallon size plant total $3.00. Modern Gardens volume is currently 1,000,000 units. Modern Garden offers the plants to garden centers for $6.00 each. Garden centers then mark them up to sell to the public for $12 to $15, depending on the type of plant.

Required:

1. Modern Gardens owners want to earn a 20% return on the companys assets. What is Modern Gardens target profit?
2. Given Modern Gardens current costs, will its owners be able to achieve their target profit?
3. If Modern Garden raises its price by $1.00 per unit, sales would be 900,000 units. Modern Garden will use Kaizen budgeting to reduce variable costs by 30 cents. If these changes are made, can Modern Garden achieve its target income?