Sweet Tastings Pty Ltd makes confectionary bars for vending machines and sells them to vendors in cases of 30 bars. Although Sweet Tastings makes a variety of bars, 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 confectionary bars next year. Sweet Tastings requires a 12% target return on investment.

Expected costs for next year are:

Variable production costs	$3.00 per case
Variable marketing and distribution costs	$2.00 per case
Fixed production costs	$400 000
Fixed marketing and distribution costs	$700 000
Other fixed costs	$500 000

Sweet Tastings prices the cases of confectionary bars at full cost-plus mark-up to generate profits equal to the target return on capital.

Required

1. For Sweet Tastings, calculate: the target operating profit; the selling price it needs to charge to earn the target operating profit; and the mark-up percentage on full cost.
2. Sweet Tastings is considering increasing its selling price to $13 per case. Assuming that production and sales decrease by 10%, calculate Sweet Tastings' return on investment. Is increasing the selling price a good idea?