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Incremental revenue associated

1. Incremental Analysis - Consider the production cost information for Santiago's salsa. The company is currently producing and selling 250,000 jars of salsa annually. The jars sell for $4.00 each. The company is considering the price to $3.70. Support this action will increase sales to 300,000 jars.
Santiago's Salsa
Production Costs
April 2008

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

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 $.30 per jar?
c. Should Santiago's lower the price of its salsa?

Solution Preview

a. What is the incremental cost associated with producing an extra 50,000 jars of salsa?
Incremental cost is variable costs considering that it has idle capacity to produce this extra 50,000 jars of ...

Solution Summary

Response provides the steps to compute the incremental revenue associated

$2.19