K-Too Everwear Corporation can manufacture mountain climbing shoes for $16.95 pe
ID: 2633366 • Letter: K
Question
K-Too Everwear Corporation can manufacture mountain climbing shoes for $16.95 per pair in variable raw material costs and $17.35 per pair in variable labor expense. The shoes sell for $80 per pair. Last year, production was 140,000 pairs. Fixed costs were $800,000. (A) What were total production costs? (B) What is the marginal cost per pair? (C) What is the average cost? (D) If the company is considering a one-time order for an extra 7,000 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) = 140,000 * (16.95 + 17.35) = 4,802,000
Total fixed costs = 800,000
Total production costs = total variable costs + total fixed costs = 4,802,000 + 800,000 = 5,602,000
Answer: Total production costs = $ 5,602,000
B. Marginal cost per pair = variable costs per pair = 16.95 + 17.35 = 34.30
Answer: Marginal cost per pair = $ 34.30
C. Average cost per pair = total production costs / number of pairs = 5,602,000 / 140,000 = 40.01
Answer: Average cost per pair = $ 40.01
D. Minimum acceptable revenue = number of pairs * marginal cost per pair = 7,000 * 34.30 = 240,100
Answer: Minimum acceptable revenue = $ 240,100
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