roduction - Jars of sauce 20,000 Ingredient cost (variable) $16,000 Labor cost (
ID: 2824760 • Letter: R
Question
roduction - 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 304,500 jars of sauce. What is the incremental revenue associated with the price reduction of sauce?
roduction - 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
revenue at 250000 jars = 250000 x $4 = $1,000,000
revenue at 304500 jars = 304500 x $3.75 = $1141875
so incremental revenue = $1,141,875 - $1,000,000 = $141875
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