Assignment: Chapter 8 Homework 12. Garden Away operates a commercial plant nursery where it propagates plants for garden centers throughout the region. Garden Away has $4.9 million in assets. Its yearly fixed costs are S682,000, and the variable costs for the potting soil, container, label, seedling, and labor for each gallon-sized plant total $1.30. Garden Away's volume is currently 480,000 units. Competitors offer the same quality plants to garden centers for $4.00 each. Garden centers then mark them up to sell to the public for $8 to $11, depending on the type of plant. Read the requirements? Requirement 1. Garden Away owners want to earn a 14% return on the company's assets. What is Garden Away's target full cost? Calculate the target full cost for Garden Away, Select the formula labels and enter the amounts. (1) Less (2) Target full cost Requirement 2. Given Garden Away's current costs, will its owners be able to achieve their target profit? Show your analysis. Calculate Garden Away's current total full cost. Select the formula labels and enter the amounts. (3) |(4) Total full cost jis (5) its target full cost. Garden Away (6) Garden Away's current total full costs of $ meet the owner's profit expectations. Requirement 3. Assume that Garden Away has identified ways to cut its variable costs to $1.15 per unit. What is its new target fixed cost? Will this decrease in variable costs allow the company to achieve its target profit? Show your analysis. Target full cost Less: Reduced level of variable costs New target fixed costs be able to The new target fixed cost is (7) . By reducing variable costs to $1.15, Garden Away (8) achieve its target profit without having to take any other cost cutting measures Requirement 4. Garden Away started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nurseries. Garden Away doesn't expect volume to be affected, but it hopes to gain more control over pricing. If Garden Away has to spend $110,400 this year to advertise and its variable costs continue to be $1.15 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 not? Determine its cost-plus price. (Round the cost-plus price to the nearest cent.) Plus: (10) (11) (12) (13) Target revenue Plus: Divided by: (14) Cost-plus price per unit Consumers will be more willing to pay the cost-plus price if the marketing campaign is (15) - Otherwise Garden Away may be considered a (16) - nursery 1: Requirements 1. Garden Away owners want to earn a 14% return on the company's assets. What is Garden Away's target full cost? 2. Given Garden Away's current costs, will its owners be able to achieve their target profit? Show your analysis. 3. Assume that Garden Away has identified ways to cut its variable costs to $1.15 per unit. What is its new target fixed cost? WII this decrease in variable costs allow the company to achieve its target profit? Show your analysis. 4. Garden Away started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nurseries. Garden Away doesn't expect volume to be affected, but it hopes to gain more control over pricing. If Garden Away has to spend $110.400 this year to advertise and its variable costs continue to be $1.15 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 not? O Revenue at current market price Total full cost (1) O Current fixed costs O Current variable costs Desired profit (2) O Revenue at current market price Total full cost Current fixed costs O Current variable costs O Desired profit (3) Revenue at current market price Target full cost Current fixed costs Current variable costs Desired profit (4) (6) O Revenue at current market price Target full cost Current fixed costs Current variable costs O Desired profit (5) O O equal to higher than O will not will not will (7) O O o less than actual fixed costs more than actual fixed costs the same as actual fixed costs (8) O will O will not (9) O O Additional fixed costs Current fixed costs O Desired profit Number of units Total full costs Total variable costs (10) O Additional fixed costs Current fixed costs O Desired profit Number of units Total full costs Total variable costs (11) O Additional fixed costs O Current fixed costs O Desired profit O Number of units Total full costs Total variable costs (12) (13) Additional fixed costs O Current fixed costs Desired profit Number of units Total full costs Total variable costs O Additional fixed costs O Current fixed costs O Desired profit O Number of units Total full costs Total variable costs O Number of units Total full costs Total variable costs (15) O O effective ineffective (16) O O (14) O O Additional fixed costs Current fixed costs O Desired profit generic premium
