Consider the production cost information for Mama Italiano Sauce given below: Ma
ID: 2622139 • Letter: C
Question
Consider the production cost information for Mama Italiano Sauce given below:
Mama Italiano 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 $3.60 per jar. Suppose this action will increase sales to 307,500 jars of sauce. What is the incremental revenue associated with the price reduction of sauce?
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Ceradyne projects its factory rent to be $6,000 in August when 8,600 units are expected to be produced. If rent is a fixed cost, and if production is expected to drop to 7,000 units in September, what is the expected cost of rent in September?
The answer can not be determined with the information that is given
$4,884
$4,900
$6,000
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Mama Italiano 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
Explanation / Answer
(1)
The correct answer is Option (c) Managerial accounting places more emphasis on the future.
Reason: Managerial Accounting is future oriented and includes preparation of Budgets and Forecasts. It assists in managerial decision making and future planning.
Financial accounting on the other hand places more emphasis on recording or current financial data and determination of current financial performance and financial position of the entity.
(2)
Incremental Loss if Mr E chooses Option 2 over Option 1 will be $ 9,350
Workings
Computation of Incremental Profit or Loss if Mr E chooses Option 2 over Option 1
Income that can be earned under Option 1:
= Salary in Work full time at a local accounting firm @ $3,950 per month
= Monthly Salary
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