Question 7 (1 point) Question 7 Unsaved Consider the production cost information

Question

Question 7 (1 point) Question 7 Unsaved 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 $3.75 per jar. Suppose this action will increase sales to 304,500 jars of sauce. What is the incremental revenue associated with the price reduction of sauce?

Explanation / Answer

Incremental revenue:

= Increase in sales×Sale price per unit-Current sales×Decrease in price per unit

= 304,500×$3.75-250,000×$0.25

= $1,141,875-$62,500

= $1,079,375

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