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# Incremental Costs

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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?

https://brainmass.com/economics/finance/incremental-costs-575576
\$2.19

## Incremental Cost-Effectiveness Ratio

1. Briefly explain the concept of incremental cost-effectiveness ratio (ICER).

2. Using the data below, calculate the average and incremental ICERs. Assume that the options are mutually exclusive.
Hint: Sort options according to cost.

Comment about the dominance of Beclomethasone over Salmeterol-high dose.

Indicate your choice when the 3-month budget is USD 200 and USD 300.

If Ipratropium treatment is the existing one, and if your incremental threshold ratio is USD 500 per FEV1 unit, what are the feasible options?

Cost (USD) over 3-month study period
Placebo 60.00

Salmeterol: low dose 170.00

Salmeterol: high dose 360.00

Ipratropium 90.00

Beclomethasone 280.00

============================
Change in FEV1 (l)

Placebo 1.1

Salmeterol: low dose 1.5

Salmeterol: high dose 1.6

Ipratropium 1.3

Beclomethasone 1.7

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