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Sweet Love Ltd. makes chocolate candy bars and sells them to vendors in cases of 30 bars. Although Sweet Love Ltd. makes a variety of chocolate candy bars, the cost differences are insignificant and the cases all sell for the same price.

Sweet Love Ltd. has a total investment in capital of $13 000 000. It expects to sell 500 000 cases of chocolate candy bars next year, as it has had relatively constant sales over the past few years. Sweet Love Ltd. requires a 10% target return on investment. Expected costs for next year are:

Variable production costs	$3.5 per case
Variable marketing & distribution costs	1.5 per case
Fixed production costs	$1 000 000
Fixed marketing & distribution costs	$700 000
Other fixed costs	$500 000

Sweet Love Ltd. prices the cases of chocolate candy bars at full cost plus markup to generate profits equal to the target return on capital.

Required:

1. How much is the target operating profit?

2. How much is the selling price Sweet Love Ltd. needs to charge to earn the target operating profit? Calculate the markup percentage on full cost.

3. Sweet Love Ltd.s closest competitor has just increased its price per case of chocolate candy bars to $15, although it sells 36 chocolate candy bars per case. Sweet Love Ltd. is considering increasing its selling price to $14 per case. Assuming that production and sales decrease by 5%, calculate Sweet Love Ltd.s return on investment. Is increasing the selling price a good idea?

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