Holsom Cakes is an independent gourmet bakery specializing in special occasion cakes. Being a small operation Holsom is a price taker. The current market price for cakes similar to Holsom's is $45. Holsom incurs monthly fixed costs for rent, equipment depreciation and salaries of $6,500. While there are small differences between cakes management believes using the average cost for ingredients and variable overhead of $15 would be sufficiently accurate for planning purposes. Holsom's owners believe they will sell 250 cakes per month at the market price of $45.
Required:
Can Holsom's owners earn an 18% annual return on their invested capital of $200,000 under this cost structure and pricing?

Question

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The Answer of Holsom Cakes is an independent gourmet bakery specializing in special occasion cakes. Being a small operation Holsom is a price taker. The current market price for cakes similar to Holsom's is $45. Holsom incurs monthly fixed costs for rent, equipment depreciation and salaries of $6,500. While there are small differences between cakes management believes using the average cost for ingredients and variable overhead of $15 would be sufficiently accurate for planning purposes. Holsom's owners believe they will sell 250 cakes per month at the market price of $45.
Required:
Can Holsom's owners earn an 18% annual return on their invested capital of $200,000 under this cost structure and pricing?

Holsom Cakes Is an Independent Gourmet Bakery Specializing in Special