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Incremental Costs

Consider the production cost information for Mama Italiano Sauce given below:

Mama Italian Sauce

Production Cost Budget

April 2008

Production - Jars of sauce
20,000

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

The company is currently producing and selling 250,000 jars of sauce annually. The jars of sauce sell for $4 per jar. The company is considering lowering the price to $3.70 per jar. Suppose this action will increase sales to 300,000 jars of sauce. What are the incremental costs associated with producing an extra 58,250 jars of sauce?

$2.19