# JJ01 - with increases in volume Jiambalvo Managerial...

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Chapter 1 Managerial Accounting in the Information Age P1. LO 2 and 5 a. Santiago’s Salsa Budgeted Production Costs May 2008 22,000 Production Jars of Salsa Ingredient cost \$17,600 Labor cost 9,900 Rent 4,000 Depreciation 6,000 Other 1,000 Total \$38,500 b. With a wage rate of \$20, 495 hours (\$9,900 ÷ \$20) will be needed in May. In April, only 450 hours were needed (\$9,000 ÷ \$20). Thus, 45 additional hours will be needed in May. The company can plan on hiring a part-time worker in May (approximately 12 hours per week) or the additional hours can be addressed with overtime. Unless management anticipates the need for the part-time worker (by preparing a budget), he or she may not be hired on a timely basis. c. The actual cost per unit in April was \$1.80 (\$36,000 ÷ 20,000 units). The cost per unit in May is anticipated to be only \$1.75 (\$38,500 ÷ 22,000 units). Unit cost declines because some costs are fixed and do not increase

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Unformatted text preview: with increases in volume. Jiambalvo Managerial Accounting P2. LO 5 and 6 a. The variable costs are \$1.25 per jar of salsa as follows: 20,000 Production Jars of Salsa Ingredient cost \$16,000 Labor cost 9,000 Total \$25,000 \$25,000 ÷ 20,000 jars of salsa = \$1.25 per jar of salsa. Thus, the incremental cost of producing an extra 50,000 jars of salsa is \$62,500 (i.e., \$1.25 × 50,000). b. The incremental revenue associated with a price reduction of \$0.30 is \$110,000 as follows: Original Revenue (250,000 × \$4.00) \$1,000,000 Revenue with price change (300,000 × \$3.70) 1,110,000 Incremental revenue associated with price change \$ 110,000 c. The price should be lowered since the incremental cost of this action (\$62,500 in part a) is less than the incremental revenue (\$110,000 in part b). 1-2...
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JJ01 - with increases in volume Jiambalvo Managerial...

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