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Wowolicious makes candy bars for vending machines and sells them to vendors in cases of 30 bars. Although Wowolicious makes a variety of candy, the cost differences are insignificant, and the casesall sell for the same price. Wowolicious has a total capital investment of $10,000,000. It expects to produce and sell 550,000 cases of candy next year. Wowolicious requires a 10% target return on investment. Expected costs for next year are as follows

Variable production costs $5.00 per case

Variable marketing and distribution costs $4.00 per case

Fixed production costs $2,100,000

Fixed marketing and distribution costs $500,000

Other fixed costs $250,000

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

REQUIRED

What is the target operating income?
2.	What is the selling price Wowolicious needs to charge to earn the target operating income? Calculate the markup percentage on full cost.
3	Wowolicious's closest competitor has just increased its candy case price to $18, although it sells 36 candy bars per case. Wowolicious is considering increasing its selling price to $17 per case. Assuming production and sales decrease by 7%, calculate Wowolicious' return on investment. Is increasing the selling price a good idea?

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