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Consider the monthly production cost information for Santiago's Salsa given below.

Santiago's Salsa Production Costs April 2020

Production - Jars of salsa 25,000

Ingredient cost (variable) $20,000

Labor cost (variable) $12,000

Rent (fixed) $5,000

Depreciation (fixed) $6,000

Other (fixed) $1,000

Total $44,000

The company is currently producing and selling 325,000 jars of salsa annually. The salsa sells for $5.00 each.

The company is considering lowering the price to $ 4.60 .

Suppose the action will increase sales to 375,000 jars of salsa.

a. What is the incremental cost associated with producing an extra 50,000 jars of salsa?

Monthly Variable costs per jar:

Ingredient cost

Labor cost

Total monthly variable cost at current production

Monthly Number of jars of salsa

Monthly Variable cost per jar at current production

Incremental number of jars

Incremental cost associated with price change

b. What is the incremental annual revenue associated with the price reduction of $ 0.40 per jar?

Original annual revenue

Annual Revenue with price change

Incremental annual revenue associated with price change

c. Should Santiago's lower the price of its salsa? Explain why.