Mama Italiano Sauce Production Cost Budget April 2008 Production - Jars of sauce
ID: 2622202 • Letter: M
Question
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 $3.60 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?
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Ceradyne projects its factory rent to be $6,000 in August when 8,600 units are expected to be produced. If rent is a fixed cost, and if production is expected to drop to 7,000 units in September, what is the expected cost of rent in September?
The answer can not be determined with the information that is given
$4,884
$4,900
$6,000
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
Explanation / Answer
Incremental revenue = New sales*New Price - Old sales*Old price = 307500*3.6 - 250000*4 = $107000
b )6000, rent is a fixed , so it will not depend on the level of production, hence rent will be 6000 for september also
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