Making pricing decisions Green Thumb operates a commercial plant nursery, where it propagates plants for garden centers throughout the region. Green Thumb has $5,300,000 in assets. Its yearly fixed costs are $625,000, and the variable costs for the potting soil, container, label, seedling, and labor for each gallon-size plant total $1.70. Green Thumb’s volume is currently 490,000 units. Competitors offer the same plants, at the same quality, garden centers for $400 each. Garden centers then mark them up to sell to the public for $9 to $12, depending on the type of plant. Requirements Green Thumbs owners want to earn a 10% return on the company’s assets. What has Green Thumb’s target full product cost? Given Green Thumb’s current costs, will its owners be able to achieve their target profit? Assume Green Thumb has identified ways to cut its variable costs to $1.55 per unit. What is its new target fixed cost? Will this decrease in variable costs allow the company to achieve its target profit? Green Thumb started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nurseries. Green Thumb does not expect volume to be affected, but it hopes to gain more control overpricing. If Green Thumb has to spend $135,000 this year to advertise and its variable costs continue to be $1.55 per unit, what will its cost-plus price be? Do you think Green Thumb will be able to sell its plants to garden centers at the cost-plus price? Why or why not?

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 13P: Deuce Sporting Goods manufactures a high-end model tennis racket. The company’s forecasted income...

See similar textbooks

Related questions

Question

Making pricing decisions

Green Thumb operates a commercial plant nursery, where it propagates plants for garden centers throughout the region. Green Thumb has $5,300,000 in assets. Its yearly fixed costs are $625,000, and the variable costs for the potting soil, container, label, seedling, and labor for each gallon-size plant total $1.70. Green Thumb’s volume is currently 490,000 units. Competitors offer the same plants, at the same quality, garden centers for $400 each. Garden centers then mark them up to sell to the public for $9 to $12, depending on the type of plant.

Requirements

Green Thumbs owners want to earn a 10% return on the company’s assets. What has Green Thumb’s target full product cost?
Given Green Thumb’s current costs, will its owners be able to achieve their target profit?
Assume Green Thumb has identified ways to cut its variable costs to $1.55 per unit. What is its new target fixed cost? Will this decrease in variable costs allow the company to achieve its target profit?
Green Thumb started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nurseries. Green Thumb does not expect volume to be affected, but it hopes to gain more control overpricing. If Green Thumb has to spend $135,000 this year to advertise and its variable costs continue to be $1.55 per unit, what will its cost-plus price be? Do you think Green Thumb will be able to sell its plants to garden centers at the cost-plus price? Why or why not?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions