What is the incremental revenue associated with the price reduction of sauce
Question Description
Consider the production cost information for Mama Italiano Sauce given below:
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 313,500 jars of sauce. What is the incremental revenue associated with the price reduction of sauce?
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