Problem:
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.
Required:
Suppose this action will increase sales to 306,000 jars of sauce. What is the incremental revenue associated with the price reduction of sauce?
Note: Explain all calculation and formulas.