Question
Sanchez Sweets is in the process of preparing a production cost budget for May. Actual costs in April for production of 7,000 batches of cookies
Sanchez Sweets is in the process of preparing a production cost budget for May. Actual costs in April for production of 7,000 batches of cookies were:
Ingredients cost $ 7,200
Rent 1,100
Labor cost 3,300
Depreciation 900
Other fixed costs 700
Total $13.200
The company is currently producing and selling 80,000 batches of cookies annually with each batch sold for $8.00. The company is considering lowering the price to $7.50 per batch for which management estimates this will increase sales to 90,000 batches. Ingredients and labor are the only variable costs.
- What is the incremental cost associated with producing an extra 10,000 batches of cookies?
- What is the incremental revenue associated with the price reduction?
- Should Sanchez Sweets lower the price of its cookies?
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