Green Thumb operates a commercial plant nursery where it propagates plants for garden centers throughout the region. GreenThumb has $6.85 million in assets. Its yearly fixed costs are $584,000, and the variable costs for the potting soil, container, label, seedling, and labor for each gallon-sized plant total $1.65. GreenThumb's volume is currently 470,000 units. Competitors offer the same quality plants to garden centers for $4.20 each. Garden centers then mark them up to sell to the public for $8 to $9, depending on the type of plant. Read the requirements. Requirements Requirement 1. GreenThumb owners want to earn a 10% return on the company's assets. What is Green Thumb's target full cost? Calculate the target full cost for Green Thumb. Select the formula labels and enter the amounts. Less: Target full cost 1. Green Thumb owners want to earn a 10% return on the company's assets. What is GreenThumb's target full cost? 2. Given Green Thumb's current costs, will its owners be able to achieve their target profit? Show your analysis. 3. Assume that Green Thumb has identified ways to cut its variable costs to $1.50 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. 4. Green Thumb started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nurseries. Green Thumb doesn't expect volume to be affected, but it hopes to gain more control over pricing. If GreenThumb has to spend $94,000 this year to advertise and its variable costs continue to be $1.50 per unit, what will its cost-plus price be? Do you think GreenThumb will be able to sell its plants to garden centers at the cost-plus price? Why or why not? Requirement 2. Given GreenThumb's current costs, will its owners be able to achieve their target profit? Show your analysis. Calculate Green Thumb's current total full cost. Select the formula labels and enter the amounts. Total full cost Print Done Green Thumb's current total full costs of $ IS its target full cost. Green Thumb meet the owner's profit expectations. Requirement 3. Assume that Green Thumb has identified ways to cut its variable costs to $1.50 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 The new target fixed cost is By reducing variable costs to $1.50, Green Thumb be able to achieve its target profit without having to take any other cost cutting measures. Requirement 4. GreenThumb started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nurseries. GreenThumb doesn't expect volume to be affected, but it hopes to gain more control over pricing. If GreenThumb has to spend $94,000 this year to advertise and its variable costs continue to be $1.50 per unit, what will its cost-plus price be? Do you think GreenThumb 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: Plus: Target revenue Divided by: Cost-plus price per unit Consumers will be more willing to pay the cost-plus price if the marketing campaign is Otherwise GreenThumb may be considered a nursery
