Consider the production cost information for Mama Italiano Sauce given below: Ma
ID: 2549972 • Letter: C
Question
Consider the production cost information for Mama Italiano Sauce given below:
Mama Italian Sauce Production Cost Budget April 2008
Production - Jars of sauce $20,000
Ingredient cost (variable) $16,000
Labor cost (variable) $9,000
Rent (fixed) $4,000
Depreciation (fixed) $6,000
Other (fixed) $1,000
Total $36,000
The company is currently producing and selling 250,000 jars of sauce annually. The jars of sauce sell for $4 per jar. The company is considering lowering the price to $3.75 per jar. Suppose this action will increase sales to 318,000 jars of sauce. What is the incremental revenue associated with the price reduction of sauce?
Explanation / Answer
Incremental Revenue would be
Current Situation
Situation after lowering the price
Incremental Revenue
Sales in Units
250,000
318,000
Unit Selling Price
$4
$3.75
Sales Value in dollars
$1,000,000
$1,192,500
$192,500
Incremental Revenue = $192,500
Current Situation
Situation after lowering the price
Incremental Revenue
Sales in Units
250,000
318,000
Unit Selling Price
$4
$3.75
Sales Value in dollars
$1,000,000
$1,192,500
$192,500
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