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

Rent1,100

Labor cost3,300

Depreciation900

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.

a.What is the incremental cost associated with producing an extra 10,000 batches of cookies?

b.What is the incremental revenue associated with the price reduction?

c.Should Sanchez Sweets lower the price of its cookies?