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
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$36,000
|
The company is currently producing and selling jars of sauce 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. What is the incremental costs associated with producing an extra 59,000 jars of sauce?