Purchase Solution

Computing Incremental Costs and Revenues

Not what you're looking for?

Ask Custom Question

Santiago's Salsa
Production Costs
Apr-08

Production 20,000 Jars of Salsa
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

1. 2 Incremental Analysis
Consider the production cost information for Santiago's Salsa in problem 1. The company is currently producing and selling 250,000 jars of salsa annually. The jars sell for $4.00 each. The company is considering lowering the price to $3.70. Suppose this action will increase sales to 300,000 jars.

Required
a. What is the incremental cost associated with producing an extra 50,000 jars of salsa?
b. What is the incremental revenue associated with the price reduction of $0.30 per jar?
c. Should Santiago's lower the price of its salsa?

Purchase this Solution

Solution Summary

This solution illustrates how to compute the incremental costs and revenues of changing a product's price and volume simultaneously.

Solution Preview

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

First, we need to know the ingredient cost per jar and labor cost per jar.

Ingredient cost for 20,000 jars = $16,000
Ingredient cost per jar = ...

Purchase this Solution


Free BrainMass Quizzes
Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Motivation

This tests some key elements of major motivation theories.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.