K-Too Everwear Corporation can manufacture mountain climbing shoes for $31.95 pe

Question

K-Too Everwear Corporation can manufacture mountain climbing shoes for $31.95 per pair in variable raw material costs and $22.90 per pair in variable labor expense. The shoes sell for $130 per pair. Last year, production was 130,000 pairs. Fixed costs were $1,075,000.

What is the marginal cost per pair? (Round your answer to 2 decimal places. (e.g., 32.16))

What is the average cost per pair? (Round your answer to 2 decimal places. (e.g., 32.16))

If the company is considering a one-time order for an extra 5,000 pairs, what is the minimum acceptable total revenue from the order?

K-Too Everwear Corporation can manufacture mountain climbing shoes for $31.95 per pair in variable raw material costs and $22.90 per pair in variable labor expense. The shoes sell for $130 per pair. Last year, production was 130,000 pairs. Fixed costs were $1,075,000.

Explanation / Answer

Total production cost = Variable cost + Fixed cost

= (31.95 + 22.90) *130,000 + 1,075,000 = $8,205,500

Marginal cost = total variable cost per unit = 31.95 + 22.90 = $54.85 per unit

Average cost = Total production cost/ total units produced = $8,205,500/130,000 = $63.12

minimum acceptable total revenue from the order = 5,000 * $54.85 = $274,250

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