Green Thumb operates a commercial plant nursery where it propagates plants for garden centers throughout the region.
Making Special Order and Pricing Decisions
Thumb operates a commercial plant nursery where it propagates plants for garden
centers throughout the region. Green Thumb has $ 4,800,000 in assets. Its
yearly fixed costs are $ 600,000, and the variable costs for the potting soil,
container, label, seedling, and labor for each gallon- size plant total $ 1.35.
Green Thumbâs volume is currently 470,000 units. Competitors offer the same
plants, at the same quality, to garden centers for $ 3.60 each. Garden centers
then mark them up to sell to the public for $ 9 to $ 12, depending on the type
1. Green Thumbâs owners want to earn a 10% return on investment on the Âcompanyâs
assets. What is Green Thumbâs target full product cost?
Green Thumbâs current costs, will its owners be able to achieve their Âtarget
3. Assume Green Thumb has identified ways to cut its
variable costs to $ 1.20 per unit. What is its new target fixed cost? Will this
decrease in variable costs allow the company to achieve its target profit?
4. Green Thumb started an aggressive advertising campaign strategy to
differentiate its plants from those grown by other nurseries. Monrovia Plants
made this strategy work, so Green Thumb has decided to try it, too. Green Thumb
does not expect volume to be affected, but it hopes to gain more control over Âpricing.
If Green Thumb has to spend $ 115,000 this year to advertise and its variable
costs continue to be $ 1.20 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 Âcost-
plus price? Why or why not?
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