A mail-order confectioner sells fine candy in one-pound boxes. It has the capacity to produce 600,000 boxes annually, but forecasts that it will produce and sell only 500,000 boxes in the coming year. The costs to manufacture and distribute the candy are detailed below. The organization has invested capital of $6,750,000.
Variable costs per pound:
Manufacturing $4.85
Packaging 0.35
Distribution 1.80
Total 7.00
Annual fixed costs:
Manufacturing overhead $810,000
Marketing and distribution 270,000
The selling price per pound that the confectioner should charge for a one-pound box of candy to obtain a 20% rate of return on invested capital is