Question
Please show formulas for work. I understand some of it, but how do you breakdown the monthly? Consider the monthly production cost information for Santiago's
Please show formulas for work. I understand some of it, but how do you breakdown the monthly?
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 sellsfor $5.00 each.
The company is considering lowering the price to $ 4.60 .
Supposethe action will increase sales to375,000jars 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.
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