Garden House operates a commercial plant where it propagates plants for garden centers throughout the region. Garden House has $5,000,000 in assets. Its yearly fixed cost is $625,000 and the variable costs for the potting soil, container, label, seedling, and labor for each gallon size plant total $1.70. Garden House's volume is currently 500,000 units. Garden House offers the plants to garden centers for $4.00 each. Garden centers then mark them up to sell to the public for $8 to $10, depending on the type of plant.
Required:
a) Garden House's owners want to earn a 12% return on the company's assets. What is Garden House's target profit?
b) Given Garden House's current costs, will its owners be able to achieve their target profit?
c) What is the per unit variable cost for Garden House to achieve its target profit?