Nature Place operates a commercial plant nursery where it propagates plants for garden centers throughout the region. Nature Place has $5,000,000 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. Nature Place's volume is currently 510,000 units. Competitors offer the same plants, at the same quality, to garden centers for $4.00 each. Garden centers then mark them up to sell to the public for $9 to $12, depending on the type of plant. Read the requirements. Requirement 1. Nature Place's owners want to earn an 11% return on investment on the company's assets. What is Nature Place's target full product cost? Less: Target full product cost Requirement 2. Given Nature Place's current costs, will its owners be able to achieve their target profit? Begin by calculating Nature Place's current full product cost. Plus: Current full product cost Nature Place's current full product costs are its target full product cost, therefore Nature Place be able to acheive its target profit. Requirement 3. Assume Nature Place 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? Begin by calculating Nature Place's new target fixed cost. Less: Target fixed cost Will this decrease in variable costs allow the company to achieve its target profit? Since the company's actual fixed costs are measures the new target fixed cost amount, Nature Place be able to achieve its target profit without having to take any other cost cutting
Nature Place operates a commercial plant nursery where it propagates plants for garden centers throughout the region. Nature Place has $5,000,000 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. Nature Place's volume is currently 510,000 units. Competitors offer the same plants, at the same quality, to garden centers for $4.00 each. Garden centers then mark them up to sell to the public for $9 to $12, depending on the type of plant. Read the requirements. Requirement 1. Nature Place's owners want to earn an 11% return on investment on the company's assets. What is Nature Place's target full product cost? Less: Target full product cost Requirement 2. Given Nature Place's current costs, will its owners be able to achieve their target profit? Begin by calculating Nature Place's current full product cost. Plus: Current full product cost Nature Place's current full product costs are its target full product cost, therefore Nature Place be able to acheive its target profit. Requirement 3. Assume Nature Place 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? Begin by calculating Nature Place's new target fixed cost. Less: Target fixed cost Will this decrease in variable costs allow the company to achieve its target profit? Since the company's actual fixed costs are measures the new target fixed cost amount, Nature Place be able to achieve its target profit without having to take any other cost cutting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 3CMA: Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each...
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