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Consider the production cost information for Mama Italiano Sauce given below:
Mama Italiano SauceProduction 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
Problem 1: 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 306,000 jars of sauce. What is the incremental revenue associated with the price reduction of sauce?
The new piece of equipment is expected to have a 10 year life and a salvage value of $15,000. What is the total value assigned to the new piece of equipment?
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