Borussia Dortmund ace Robert Lewandowski will join the the Bavarian giants later this summer, forcing Mandzukic further down the pecking order.
His desire to leave has seen a host of top clubs, including Manchester United, Chelsea and Inter Milan all linked with a swoop.
The Evening Standard reports that the Gunners appear to be in pole position for the 28-year-old, however, they must stump up £20m, which is more than their valuation of the player, if they are to force through a deal.
Mandzukic's wage packed, which is in the region of £60k-per-week, which won't be an issue for the Gunners.
