Homework Sourseroduction Jars of sauce 20000 Ingredient cost variable 1600
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 |
Solution
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
