Snackolicious makes candy bars for vending machines and sells them to vendors in cases of 30 bars. Although Snackolicious makes a variety of candy, the cost differences are insignificant, and the cases all sell for the same price. Snackolicious has a total capital investment of $17,000,000. It expects to produce and sell 700,000 cases of candy next year. Snackolicious requires a 10% target return on investment. Expected costs for next year are as follows:

Snackolicious prices the cases of candy at full cost plus markup to generate profits equal to the target return on capital.

Variable production costs	$2.50 per case
Variable marketing and distribution costs	$1.00 per case
Fixed production costs	$2,600,000
Fixed marketing and distribution costs	$600,000
Other fixed costs	$350,000

1. What is the target operating income?

2. What is the selling price Snackolicious 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.)

Target revenues. ____________________

Variable costs. ____________________

Contribution margin __________________

Fixed costs. ___________________

Target operating income. ________________

3. Snackolicious closest competitor has just increased its candy case price to $13, although it sells 36 candy bars per case. Snackolicious is considering increasing its selling price to $12 per case. Assuming production and sales decrease by 8%, calculate Snackolicious' return on investment. Is increasing the selling price a good idea?