Exercise 3 Pricing Butler makes chocolates for vending machines and sells them to vendors in cases of 30 units. Although Butler makes a variety of candy, the cost differences are insignificant, and the cases all sell for the same price. Butler has a total capital investment of $13,000,000. It expects to produce and sell 500,000 cases of chocolate next year. Butler requires a 10% target return on investment. Expected costs for next year are as follows: Variable production costs Variable marketing and distribution costs Fixed production costs Fixed marketing and distribution costs Other fixed costs $3.50 per case $1.50 per case $ 1,000,000 $ 700,000 $ 500,000 Butler prices the cases of chocolate 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 Butler needs to charge to earn the target operating income? Calculate the markup percentage on full cost. 3. Butler's closest competitor has just increased its candy case price to $15, although it sells 36 chocolates bars per case. Butler is considering increasing its selling price to $14 per case. Assuming production and sales decrease by 5%, calculate Butler's return on investment. Is increasing the selling price a good idea