Abuelita's Hot Sauce (Blog Number 3)

Abuelita’s Hot Sauce 

Opened in 1994 by Christopher Ledesma, Abuelita’s hot sauce was a family owned reciped that Christopher received from his mother Elizabeth. He has since passed the company down to his son Anthony who has taken the company to the level by expanding Abelita’s to a wider range of consumers in the United States. Abuelita’s Hot Sauce has been the number one hot sauce in the United States for the past three years and has also beat sriracha and tapatio in taste test. Abuelita continues to grow and want to expand to other countries. Abuelita’s Hot Sauce now operates in Anaheim Hills, California. 

Part 2: 

Fixed Cost 

               Rent: $10,000

               Proptery Tax: $1,500  

               Heating/AC: $5,000

               Salaries: $62,000

Variable Cost ($):

               Raw Materials Per Unit (Bottle, Cap, Tomatoes, Chiles, Label): $2.00

               Labor Per Unit: $1.50 

Selling Price ($):

               Hot Sauce: $5.00

Cost Function: 

               C(q) = $78,500 + 3.5q

Revenue Function: 

               R(q) = 5q

Profit Function: 

               P(q) = R(q) –  c(q)

               P(q) = 5q    – $78,500 –  3.5q

               P(q) = 1.5q –$78,500

Breakeven Point:

               R(q) = C(q)

                  5q= $78,500 + 3.5q

               1.5q= $78,500

               Q=52,334 units to break even ($261,667)

Part Three: 

Marginal Cost 

N= 7,000 units are produced on a daily basis. 

C(q) =  $78,500 + 3.5 (q)

C’(q)= 3.5

Marginal Cost is constant, to produce the 7,000th unit cost  

Average Cost with q=n

=$78,500 +3.5q/q

=$78,500 +3.5(12,500)/12,500

Marginal Revenue: Price per unit – variable cost 

                                    $5.00 – 3.50

                                    $2.50

Daily Units:

The Marginal Revenue is less than the Marginal Cost which means the company will be making less of a profit over time.  

Increased by One Unit:

R(7,001)= 5 x 7,001 – 5 x 7,000

               =35,005 – 35,000

              = – 5

We will incur an added $5 in cost , but at the same time we will also have a $2 revenue generated from making the extra unit, so 5–2=3 dollar will be the revenue earned by one extra unit. 

Increase in Production at q = n

If average cost are more than marginal cost, it will decrease the average coszt by increasing production.  We want to have less average cost as possible because the company will spend less per bottle of hot sauce and cause the company to have more of a profit in the long run. F

Part 4

Future Analysis:

Since the company’s marginal revenue is less than marginal cost, the company will continue to struggle unless it finds a way to decrease average cost per bottle of hot sauce. The average cost will decrease; this will also cause the company’s average cost to decrease as well. So that the marginal revenue will be greater than the marginal cost in the long run and provide the company with the stability it needs to survive in the market of hot sauce.