Reference no: EM133002076

Natures Organics has been considering options for increasing the awareness of the Cove brand as well as providing additional revenue opportunities. The company has decided to extend its range of household cleaning products to include a cleaning product for dogs, specifically a dog wash and deodoriser. The product contains all natural ingredients, including essential oils such as lavender and sage, and is packaged in the same environmentally friendly format as the other products in the Cove range: a reusable aluminium spray bottle and refill pouches (or pooches!). The product can be used as a gentle shampoo which carefully cleans and conditions while protecting the natural oils on the epidermal layer which protect the dog's skin from bacteria and pollutants. In addition, the product can be sprayed on dog beds and in kennels to deodorise and protect against bacteria - while also providing a calm and relaxing haven for your four-legged friend.

Natures Organics is planning to initially trial the product in six Petbarn locations in Melbourne for a period of six months. They have estimated the costs for the product as follows:

Variable costs:

Ingredients $3.50/unit

Packaging .80/unit

Labour .25/unit

Fixed costs:

Manufacturing costs $4,500

Administration costs $2,500

Petbarn is planning a markup of 35% (of their retail selling price) for the product.

If Natures Organics want the dog wash and deodoriser to retail for $19.50, please address the following:

Problem 1: What will Natures Organics' selling price have to be, assuming the above stated markup for the retailer?

Problem 2: How many units will Natures Organics need to sell to break even?

Problem 3: How many units will Natures Organics need to sell to Petbarn to earn a target profit of $20,000?

Problem 4: If Natures Organics achieves the sales volume required to earn the target profit, what will be their profit %?

Problem 5: Do you think Natures Organics should proceed with this venture? Why or why not?