Question

Green House operates a commerciaf plant mursery where in propagales plants for garden centers thoughout the region. Green House has $5.25 milion in assits. Its yeady fixed costs are $668,500, the vasiable costs loe the potting sol, conlainer, labdi, seeding, and labor for each gallon-sued plant total 51.20 Green House's volame is currently 490 , 000 ints Competiors offer the same qualty plants to garden cenlers tor $370 each Garden centers then mark them up to sell to the public for $8 fo $10, depending on the type of plant Read the regurments Requirement 1. Green House owners want to Cim a 12% return on tho companys assets What is Green House's targot full cost? Cadculate the targel ful cost for Gieen House Seled the formula Iabols and onter the amounts Requirements Ceeen House ownen want to eama a 12 retuin on the compowrs assets What os Cheen Heceres tarect fal cost?

Answer 1

To calculate Green House's desired target full cost per unit for a 12% return, calculate 12% of total assets, add yearly fixed costs, include total variable costs, and then divide by current volume to get the per-unit figure.

Step-by-step explanation:

The target full cost for Green House to achieve a 12% return on the company's assets can be calculated by adding the desired return to the total costs. The company's total costs include both fixed and variable costs. To calculate the target full cost per unit, we must first determine the desired profit by taking 12% of the total assets, which equals $5.25 million * 12% = $630,000. Next, we add the yearly fixed costs of $668,500. The total desired revenue to meet the target return would be $630,000 (desired profit) + $668,500 (fixed costs) = $1,298,500.

Furthermore, since variable costs are $1.20 per unit and Green House's current volume is 490,000 units, the total variable costs are 490,000 units * $1.20 = $588,000. The sum of the desired revenue and total variable costs gives us the target total sales revenue, which is $1,298,500 + $588,000 = $1,886,500. To find the target full cost per unit, we must divide the target total sales revenue by the current volume of 490,000 units, resulting in a target full cost of $1,886,500 / 490,000 units = approximately $3.85 per unit.