=+9-21 KK Cost-plus, target return on investment pricing OBJECTIVES 2, 4 Perfection makes chocolate bars for vending machines and sells them to vendors in cases of 30 bars. Although Perfection makes a variety of chocolate bars, the cost differences are insignificant and the cases all sell for the same price.

Perfection has a total investment in capital of $13000000. It expects to sell 500000 cases of chocolate bars next year, as it has had relatively constant sales over the past few years. Perfection requires a 10% target return on investment.

Chapter 9: Pricing decisions and customer-profitability analysis 367 M09_HORN3377_02_LT_C09.indd 367 2/09/13 3:45 PM Expected costs for next year are:

Variable production costs $3.50 per case Variable marketing and distribution costs $1.50 per case Fixed production costs $1 000 000 Fixed marketing and distribution costs $700 000 Other fixed costs $500 000 Perfection prices the cases of chocolate bars at full cost plus mark-up to generate profits equal to the target return on capital.

Required 1 What is the target operating profit?