Cost$-$plus, target return on investment pricing. Vend$-$o$-$licious makes candy bars for vending machines and sells them to vendors in cases of $30$ bars. Although Vend$-$o$-$licious makes a variety of candy, the cost differences are insignificant, and the cases all sell for the same price.

Vend$-$o$-$licious has a total capital investment of $$13,000,000.$ It expects to produce and sell $500,000$ cases of candy next year. Vend$-$o$-$licious requires a $10\%$ target return on investment.

Expected costs for next year are as follows:

Vend$-$o$-$licious prices the cases of candy at full cost plus markup to generate profits equal to the target return on capital.

$1.$ What is the target operating income?

$2.$ What is the selling price Vend$-$o$-$licious needs to charge to earn the target operating income?

Calculate the markup percentage on full cost.

$3.$ Vend$-$o$-$licious$$sclosestcompetitorhasjustincreaseditscandycasepriceto$$15,$althoughitsells$36$candy

bars per case. Vend$-$o$-$licious is considering increasing its selling price to $$14$ per case. Assuming produc$-$ tion and sales decrease by $5\%,$ calculate Vend$-$o$-$licious$$ return on investment. Is increasing the selling price a good idea?