Consider the production cost information for Mama Italiano S

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 50,000 jars of sauce?

Solution

Ingredient cost $ 40,000 =(16000/20000)*50000 Labor cost $ 22,500 =(9000/20000)*50000 Incremental costs for 50,000 units $ 62,500