Problem I

Production for Jose Gs Salsa Co. April 2008

20,000 jars of Salsa (units)

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

Prepare a budget. Assume that production will increase to 22,000 jars, reflecting an anticipated sales increase related to a new marketing campaign.

Does the budget suggest additional work hours are needed? Suppose the wage rate is $20 per hour. How many additional labor hours are needed in May?

Calculate the actual cost per unit in April and the budgeted cost per unit in May. Explain why the cost per unit is expected to decrease.