Outdoors Place operates a commercial plant nursery, where itpropagates plants for garden centers throughout the region.Outdoors Place has $5,100,000 in assets. Its annual fixed costs are$650,000, and the variable costs for the potting soil, container,label, seedling, and labor for each gallon-size plant total $1.40.Outdoors Place volume is currently 480,000 units. Competitors offerthe same plants, at the same quality, to garden centers for $3.75each. Garden centers then mark them up to sell to the public for $7to $10, depending on the type of plant.
1) Outdoors Place owners want to earn an 11% return on thecompanyâs assets. What is their target full product cost?
2) Given Outdoor Placeâs current costs, will its owners be ableto achieve their target profit?
3) Assume Outdoors Place has identified ways to cut its variablecosts to $1.25 per unit. What is its new target fixed cost? Willthis decrease in variable costs allow to company to achieve itstarget profit?
4) Outdoors Place started an aggressive advertising campaignstrategy to differentiate its plants from those grown by othernurseries. Greenery Plants made this strategy work, so OutdoorsPlace has decided to try it, too. Outdoors Place does not expectvolume to be affected, but hopes to gain more control over pricing.If Outdoors Place has to spend $125,000 this year to advertise andits variable costs continue to be $1.25 per unit, what will itscost-plus price be? Do you think Outdoors Place will be able tosell its plants to garden centers at the cost-plus price? Why orwhy not?
Outdoors Place operates a commercial plant nursery, where itpropagates plants for garden centers throughout the region.Outdoors Place has $5,100,000 in assets. Its annual fixed costs are$650,000, and the variable costs for the potting soil, container,label, seedling, and labor for each gallon-size plant total $1.40.Outdoors Place volume is currently 480,000 units. Competitors offerthe same plants, at the same quality, to garden centers for $3.75each. Garden centers then mark them up to sell to the public for $7to $10, depending on the type of plant.
1) Outdoors Place owners want to earn an 11% return on thecompanyâs assets. What is their target full product cost?
2) Given Outdoor Placeâs current costs, will its owners be ableto achieve their target profit?
3) Assume Outdoors Place has identified ways to cut its variablecosts to $1.25 per unit. What is its new target fixed cost? Willthis decrease in variable costs allow to company to achieve itstarget profit?
4) Outdoors Place started an aggressive advertising campaignstrategy to differentiate its plants from those grown by othernurseries. Greenery Plants made this strategy work, so OutdoorsPlace has decided to try it, too. Outdoors Place does not expectvolume to be affected, but hopes to gain more control over pricing.If Outdoors Place has to spend $125,000 this year to advertise andits variable costs continue to be $1.25 per unit, what will itscost-plus price be? Do you think Outdoors Place will be able tosell its plants to garden centers at the cost-plus price? Why orwhy not?
