Question: Incremental Analysis - Consider the production cost information for Santiago's salsa. The company is currently producing and selling 250,000 jars of salsa annually. The jars sell for $4.00 each. The company is considering the price to $3.70. Support this action will increase sales to 300,000 jars.

Santiago's Salsa

Production Costs

April 2008

Production 20,000 Jars of Salsa

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

Required:

a. What is the incremental cost associated with producing an extra 50,000 jars of salsa?

b. What is the incremental revenue associated with the price reduction of $.30 per jar?

c. Should Santiago's lower the price of its salsa?