Santiago’s Salsa in Problem 1-1. The company is currently producing and selling 325,000 jars of

salsa annually.The jars sell for $5.00 each.The company is considering lowering the price to $4.60.
Suppose this action will increase sales to 375,000 jars.
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 $0.40 per jar? $
c. Should Santiago’s lower the price of its salsa?

edd

To calculate the incremental cost associated with producing an extra 50,000 jars of salsa, you need to determine the additional cost per jar of salsa.

Incremental Cost = Additional Cost per jar * Number of extra jars

To find the additional cost per jar, you can use the company's current production and sales figures.

Current Production = 325,000 jars
Current Sales = 325,000 jars

Therefore, the current cost per jar can be calculated by dividing the total production cost by the number of jars produced:

Cost per jar = Total Production Cost / Current Production

Let's assume that the total production cost is C dollars.

Cost per jar = C / 325,000

Now that you have the cost per jar, you can calculate the incremental cost:

Incremental Cost = (C / 325,000) * 50,000

To calculate the incremental revenue associated with the price reduction of $0.40 per jar, you need to determine the additional revenue per jar.

Incremental Revenue = Additional Revenue per jar * Number of jars

To find the additional revenue per jar, you can calculate the price difference between the current price and the new price:

Additional Revenue per jar = Price Difference

Price Difference = Current Price - New Price

Now that you have the additional revenue per jar, you can calculate the incremental revenue:

Incremental Revenue = Additional Revenue per jar * 375,000

To answer whether Santiago's should lower the price of its salsa, you need to compare the incremental cost with the incremental revenue. If the incremental revenue is greater than the incremental cost, it would be advisable for Santiago's to lower the price. If the incremental cost is greater than the incremental revenue, it may not be beneficial to lower the price.

Therefore, to make a decision, you need to compare the values obtained in parts a and b:

Incremental Cost from part a. = $
Incremental Revenue from part b. = $

By comparing these two values, you can determine whether Santiago's should lower the price of its salsa.