Mama Italiano Sauce is in the process of preparing a production cost budget for
ID: 2760749 • 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
Using this information, prepare a budget for May stating the total amount for the May budget. Assume the budget will increase to 24,500 jars of sauce reflecting anticipated sales increase related to a new marketing campaign
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
Explanation / Answer
All variable costs will vary with increase in production and sales.
Increase in production = (new production – old production)/ old production
= (24,500 – 20,000)/20,000
= 22.50%
Ingredient cost (1+0.2250) x 16,000 =19,600
Labor cost ( 1+0.2250) x 9,000 = 11,025
Rent = 4000
Depreciation = 6000
Other costs = 1000
Total cost 41,625
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