The company is currently producing and selling jars of sauce The jars of sauce sell for $4 per jar.

Consider the production cost information for Mama Italiano Sauce given below:

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 68,750 jars of sauce?

Round to two decimal places.

Expert Solution

Only variable cost varies with level of output, Fixed cost remain constant irrespective of number of units produced.

Thus Variable cost per unit = Total Variable cost/No. Of units

= (16000+ 9000 ) /20000

= 25000 / 20000

= $1.25 per jar

Incremental cost associated with producing extra 68,750 jars = 68,750 * 1.25 = $85,937.5

Rahul Sunny answered 2 years ago

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