Mama Italiano Sauce is in the process of preparing a production cost budget for
ID: 2641873 • Letter: M
Question
Mama Italiano Sauce is in the process of preparing a production cost budget for May. The actual costs in April were:
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 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 56,000 jars of sauce?
Explanation / Answer
Variable cost per unit = (16000 + 9000) / 20000 = 1.25 per unit
ncremental costs associated with producing an extra 56,000 jars of sauce = 56000 * 1.25 = 70000
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