1. 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 316,500 jars of sauce. What is the incremental revenue associated with the price reduction of sauce?
Your Answer:
2. Ceradyne projects its factory rent to be $6,000 in August when 8,600 units are expected to be produced. If rent is a fixed cost, and if production is expected to drop to 7,000 units in September, what is the expected cost of rent in September?
a. The answer can not be determined with the information that is given
b. $4,884
c. $4,900
d. $6,000