2) Managerial Financial Accounting Assignments AP1-2 Solution

# 2) Managerial Financial Accounting Assignments AP1-2 Solution

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AP1-2

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Incremental Analysis [LO 5, 6] Santiago's Salsa is in the process of preparing a production cost budget for May. Actual costs in April were: Santiago's Salsa Production Costs April 2011 Production 29,600 Jars of Salsa Ingredient cost (variable) \$23,680 Labor cost (variable) 14,800 Rent (fixed) 5,240 Depreciation (fixed) 6,960 Other (fixed) 1,830 Total \$52,510 The company is currently producing and selling 325,900 jars of salsa annually. The jars sell for \$5.50 each. The company is considering lowering the price to \$5.00. Suppose this action will increase sales to 381,900 jars. AP 1-2 The variable costs are \$1.30 per jar of salsa as follows:
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Unformatted text preview: Production 29,600 Jars of Salsa Ingredient cost \$23,680 Labor cost 14,800 Total \$38,480 \$38,480 ÷ 29,600 jars of salsa = \$1.30 per jar of salsa. Thus, the incremental cost of producing an extra 56,000 jars of salsa is \$72,800 (i.e., \$1.30 × 56,000). AP1-2 The incremental revenue associated with a price reduction of \$0.50 is \$117,050 as follows: Original revenue (325,900 × \$5.50) \$1,792,450 Revenue with price change (381,900 × \$5.00) 1,909,500 Incremental revenue associated with price change \$117,050...
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2) Managerial Financial Accounting Assignments AP1-2 Solution

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