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Problem 1-2 Incremental Analysis

Problem 1-2 Incremental Analysis
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ACCOUNTING

MT425 / MT 425
Managerial Finance and Accounting
Kaplan University (KU Campus)

James Jiambalvo
Managerial Accounting, 4e
Hoboken, NJ: John Wiley & Sons.

Unit 2: Accounting, Management, and Cost Decisions

Chapter 1, Problem 1-2 Incremental Analysis [LO 5, 6] Consider the production cost information for 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?

 

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