Scenario

Spring Creek Gardens $($SCG$)$ aperates a commercial nursery where it propagates plants for garden centers throughout the regian.

SCG has $$9,700,000$ in assets. Its yearly food costs are $$939,000,$ and the variable costs for the potting soil, container, label, seedling, and

labor for exch gallan$-$size plart total $$6.$B$5.$ SCGs$\text{'}$ sales volume is currently $790,000$ units. Competitars affer the same phants, at the roughly

the same quality, to garden centers for $$8\mathrm{.}75$ each. Garden centers then mark them up to sell to the public for $$16$ to $$19,$ depending co the

type of plant.

The December $12$th Management Meeting $-$ The awners of SCG cwners expressed in no uncertain terms that next year's profit must equal or

exceed $11\%$ of assets used in the operation. SCG has traditionally used a target costing strategy and the cost accountant at the meeting said

that with the current cost structure, that the awner's profit goal will not be met. The production manager, along with an owner's daughter Ms$.$

Iris Horticus, a harticulturist by training, said that they can cut the variable cost per unit by fifty cents $($ $$0\mathrm{.}50/$unit reduction$).$ The cost

accountant agreed that this reduction was enough to meet the cowner's policy of a return of $11\%$ cn assets utilized.

On January $3$rd $-$ A Management Reset Occurs $-$ The awners 'fire' $[$i$.$e$.$ the cowners terminated the employment of$)$ all the top managers stating

"the old management tearn was too complacent in the past and never made a profit over the long$-$run." $($The cost sccountant did remain

employed at SCG$.)$

The January $4$ th Ownership Meeting $-$ The awners, promate Ms$.$ Iris Horticus to be the new General Manager and instruct her to immediately

start an aggressive sdvertising campaign strategy to differentiate SCG plants from those grawn by other nurseries. The owners also stated that

they do nat expect the soles volume to be affected by the new advertising campaign. And they also said that $$600,000$ is allocated for the

sdvertising budget which will run from February through April and that the variable costs af the propogated plants must cantinue to be $$6\mathrm{.}35$

per unit.

Given these conditions, what will its cost$-$plus price be$?$ Do you think SCG will be able to sell its plants to garden centers at the coat$-$plus price?

Why or why nat?

Required

This is a group activity. Your assigned group will write a memo with appendices. Suggestions for constructing your memo and appendices are

autlined below.

Memo and Spring Creek Gardens $($SCG$)$ operates a commercial nursery where it propagates plants for garden centers throughout the region. SCG has $$8,200,000$ in assets. Its yearly fixed costs are $$959,000,$ and the variable costs for the potting soil, container, label, seedling, and labor for each gallon$-$size plant total $$6\mathrm{.}35.$ SCGs$$ sales volume is currently $770,000$ units. Competitors offer the same plants, at the roughly the same quality, to garden centers for $$8\mathrm{.}75$ each. Garden centers then mark them up to sell to the public for $$14$ to $$18,$ depending on the type of plant. The December $12$th Management Meeting $-$ The owners of SCG owners expressed in no uncertain terms that next year$$s profit must equal or exceed $12\%$ of assets used in the operation. SCG has traditionally used a target costing strategy and the cost accountant at the meeting said that with the current cost structure, that the owner$$s profit goal will not be met. The production manager, along with an owner$$s daughter Ms$.$ Iris Horticus, a horticulturist by training, said that they can cut the variable cost per unit by thirty cents $($$$0\mathrm{.}30/$unit reduction$).$ The cost accountant agreed that this reduction was enough to meet the owner's policy of a return of $12\%$ on assets utilized. On January $3$rd $-$ A Management Reset Occurs $-$ The owners 'fire' $($i$.$e$.$ the owners terminated the employment of$)$ all the top managers stating "the old management team was too complacent in the past and never made a profit over the long$-$run." The January $4$th Ownership Meeting $-$ The owners, promote Ms$.$ Iris Horticus to be the new General Manager and instruct her to immediately start an aggressive advertising campaign strategy to differentiate SCG plants from those grown by other nurseries. $($The cost accountant did remain employed at SCG$.)$ The owners also stated that they do not expect the sales volume to be affected by the new advertising campaign. And they also said that the advertising budget for the campaign is $$600,000$ this year and that the variable costs of the propagated plants must continue to be $$6\mathrm{.}05$ per unit. Given these conditions, what will its cost$-$plus price be$?$ Do you think SCG will be able to sell its plants to garden centers at the cost$-$plus price? Why or why not?