Problem
Consider the production cost information for Mama Italiano Sauce given below:
|
Mama Italiano 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 $3.75 per jar. Suppose this action will increase sales to 307,500 jars of sauce. What is the incremental revenue associated with the price reduction of sauce?