Cost-plus, target return on investment pricing. Sweet Tastings makes candy bars for vending machines and sells them to vendors in cases of 30 bars. Although Sweet Tastings makes a variety of candy, the cost differences are insignificant, and the cases all sell for the same price. Sweet Tastings has a total capital investment of $10,000,000. It expects to produce and sell 400,000 cases of candy next year. Sweet Tastings requires a 12% target return on investment. Expected costs for next year are: Variable production costs Variable marketing and distribution costs Fixed production costs Fixed marketing and distribution costs Other fixed costs $3.00 per case $2.00 per case 1. 2. $400,000 $700,000 $500,000 Sweet Tastings prices the cases of candy at full cost plus markup to generate profits equal to the target return on capital. Required: What is the target operating income? What is the selling price Sweet Tastings needs to charge to earn the target operating income? Calculate the markup percentage on full cost. 3. Sweet Tastings is considering increasing its selling price to $13 per case. Assuming production and sales decrease by 10%, calculate Sweet Tastings' return on investment. Is increasing the selling price a good idea?
Cost-plus, target return on investment pricing. Sweet Tastings makes candy bars for vending machines and sells them to vendors in cases of 30 bars. Although Sweet Tastings makes a variety of candy, the cost differences are insignificant, and the cases all sell for the same price. Sweet Tastings has a total capital investment of $10,000,000. It expects to produce and sell 400,000 cases of candy next year. Sweet Tastings requires a 12% target return on investment. Expected costs for next year are: Variable production costs Variable marketing and distribution costs Fixed production costs Fixed marketing and distribution costs Other fixed costs $3.00 per case $2.00 per case 1. 2. $400,000 $700,000 $500,000 Sweet Tastings prices the cases of candy at full cost plus markup to generate profits equal to the target return on capital. Required: What is the target operating income? What is the selling price Sweet Tastings needs to charge to earn the target operating income? Calculate the markup percentage on full cost. 3. Sweet Tastings is considering increasing its selling price to $13 per case. Assuming production and sales decrease by 10%, calculate Sweet Tastings' return on investment. Is increasing the selling price a good idea?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Cost-plus, target return on investment pricing. Sweet
Tastings makes candy bars for vending machines and sells them
to vendors in cases of 30 bars. Although Sweet Tastings makes a
variety of candy, the cost differences are insignificant, and the
cases all sell for the same price.
Sweet Tastings has a total capital investment of $10,000,000.
It expects to produce and sell 400,000 cases of candy next year.
Sweet Tastings requires a 12% target return on investment.
Expected costs for next year are:
Variable production costs
Variable marketing and distribution costs
Fixed production costs
Fixed marketing and distribution costs
Other fixed costs
$3.00 per case
$2.00 per case
$400,000
$700,000
$500,000
Sweet Tastings prices the cases of candy at full cost plus markup
to generate profits equal to the target return on capital.
Required:
1.
2.
What is the target operating income?
What is the selling price Sweet Tastings needs to charge
to earn the target operating income? Calculate the markup
percentage on full cost.
3.
Sweet Tastings is considering increasing its selling price
to $13 per case. Assuming production and sales decrease by
10%, calculate Sweet Tastings' return on investment. Is
increasing the selling price a good idea?
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