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 costsVariable marketing and distribution costsFixed production costsFixed marketing and distribution costs$3.00 per case$2.00 per case$400,000$700,000$500,000Other fixed costsSweet Tastings prices the cases of candy at full cost plus markup to generate profits equal to the targetreturn on capital.1. What is the target operating income?2. What is the selling price Sweet Tastings needs to charge to earn the target operating income? Calcu-late the markup percentage on full cost.3. Sweet Tastings is considering increasing its selling price to $13 per case. Assuming production and salesdecrease by 10%, calculate Sweet Tastings' return on investment. Is increasing the selling price a good idea?Required

1. Compute target operating income on total capital investment as shown below:

Answered: Variable production costs Variable…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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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
$3.00 per case
$2.00 per case
$400,000
$700,000
$500,000
Other fixed costs
Sweet Tastings prices the cases of candy at full cost plus markup to generate profits equal to the target
return on capital.
1. What is the target operating income?
2. What is the selling price Sweet Tastings needs to charge to earn the target operating income? Calcu-
late 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?
Required

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