Question

Jordan Corporation operates a commercial nursery where it propagates plants for garden centers throughout the region. Jordan 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. Jordan’s volume is currently 500,000 units. Jordan 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) Jordan’s owners want to earn a 12% return on the company’s assets. What is Jordan’s target profit?

b) Given Jordan’s current costs, will its owners be able to achieve their target profit?

c) If the target profit is not met, what are possible actions for Jordan to take?

Answer 1

a) Jordan Corporation's total assets	$ 5000000
Target Profit	12% of assets
	$ 5000000*12%
	600000
b) Calculation of current Profit
Sales Price ($)	4
Less : Variable cost	1.7
Contribution per unit (A)	2.3
No of units (B)	500000
Total Contribution (A*B)	1150000
Less : Fixed cost	625000
Current Profit	525000
Target profit	600000
Shorter Profit	75000
No, Jordan's will not be able to achieve its target prift with the current cost. It falls short by $ 75000
Jordan take the following actions:
1. It can try to reduce its variable cost per unit
2. It can increase the sales price since garden centers sells plant at more than double the price
3. It can reduce the fixed cost