Consider the production cost information for Prego given below: Prego Production
ID: 2661312 • Letter: C
Question
Consider the production cost information for Prego given below:
Prego
Production Cost Budget
April 2010
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 $3.70 per jar. Suppose this action will increase sales to 300,000 jars of sauce. What is the incremental revenue associated with the price reduction of sauce?
Prego
Production Cost Budget
April 2010
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
Hi,
Please find the answer as follows:
Incremental Revenue = Revised Sales Value - Current Sales Value = 300000*3.70 - 250000*4 = 110000
Answer is 110000.
Thanks.
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