Golden Ribbon makes candy bars for vending machines and sells them to vendors in cases of 30 bars. Although Gold Ribbon makes a variety of candy, the cost differences are insignificant, and the cases all sell for the same price. Gold Ribbon has a total capital investment of $20,000,000. It expects to produce and sell 700,000 cases of candy next year. Gold Ribbon requires a 12% target return on investment. Expected costs for next year are:

Variable production costs	$4.00 per case
Variable marketing and distribution costs	$1.50 per case
Fixed production costs	$2,650,000
Fixed marketing and distribution costs	$500,000
Other fixed costs	$400,000

a) What is the operating income?

b) What is the selling price Gold Ribbon needs to charge to earn the target operating income? Calculate the markup percentage on full cost. Begin by calculating the target revenues by working backwards from the target operating income. Find the following:

Target Revenues

Variable Cost

Contribution Margin

Fixed Costs

Target Operating Income

Gold Ribbon must charge

per case to earn the target operating income.

Now calculate the markup percentage on full cost.

(markup per unit / full cost per unit) = markup on full costs as %

c) Golden Ribbon is considering increasing its selling price to $15 per case. Assuming production and sales decrease by 4%, calculate Gold Ribbon's return on investment. Is increasing the selling price a good idea? Begin by calculating the new target operating income. Find the following:

Target Revenues

Variable Cost

Contribution Margin

Fixed Costs

Target Operating Income

What is Golden Ribbons return on investment as a %?