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Green House Sdn. Bhd. operates a large commercial palm oil nursery in Nilai, Negeri Sembilan. It distributes the palm oil seedlings (small plants) to large
Green House Sdn. Bhd. operates a large commercial palm oil nursery in Nilai, Negeri Sembilan. It distributes the palm oil seedlings (small plants) to large palm oil plantations through-out Malaysia and Indonesia. Green House Sdn. Bhd.'s total investment is RM5,800,000 in assets. It's yearly fixed cost is RM742,000 and the variable cost per seedling is RM1.55 which includes cost of potting soil, container, labeling and labour. The current price for palm oil seedlings in the market is RM 3.80 each. Green House Sdn. Bhd. volume is currently 575,000 units A new general manager was appointed in early 2019 and has been reviewing Green House Sdn Bhd's operations and pricing policies. He believes that the pricing of products should be based on a reasonable return on investment. The general manager wants to earn 11% return on investment on the company's assets. Required: i. What is the Green House Sdn. Bhd.'s target full cost? Compute also the target unit full cost. cm2 ii. Given the current cost, will Green House Sdn. Bhd. be able to achieve the target cost? What is the "cost gap"? Show your calculations. iii. What action(s) can the general manager undertake to eliminate the "cost gap"? Explain. iv. In addition to the action in (ii) above, the general manger started an aggressive advertising strategy to differentiate its products from its competitors. He spends RM57,500 on advertising cost this year and was able to reduce the variable cost to RM1.25 per seedling. What is the cost-plus selling price per seedling
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