K-Too Everwear Corporation can manufacture mountain climbing shoes for $42.88 pe
ID: 2632460 • Letter: K
Question
K-Too Everwear Corporation can manufacture mountain climbing shoes for $42.88 per pair in variable raw material costs and $25.30 per pair in variable labor expense. The shoes sell for $122 per pair. Last year, production was 90,000 pairs. Fixed costs were $1,015,000.
A) What were total production costs?
B)What is the marginal cost per pair?
C)What is the average cost per pair?
D)If the company is considering a one-time order for an extra 6,000 pairs, what is the minimum acceptable total revenue from the order?
Explanation / Answer
A. Total variable costs = number of pairs * (variable raw material costs + variable labor expense) = 90,000 * (42.88 + 25.30) = 6,136,200
Total fixed costs = 1,015,000
Total production costs = total variable costs + total fixed costs = 6,136,200 + 1,015,000 = 7,151,200
Answer: Total production costs = 7,151,200
B. Marginal cost per pair = variable costs per pair = 68.18
Answer: Marginal cost per pair = 68.18
C. Average cost per pair = total production costs / number of pairs = 7,151,200 / 90,000 = 79.46
Answer: Average cost per pair = 79.46
D. Minimum acceptable revenue = number of pairs * marginal cost per pair = 6,000 * 68.18 = 409,080
Answer: Minimum acceptable revenue = 409,080
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