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1 June, 17:42

K-Too Everwear Corporation can manufacture mountain climbing shoes for $25.70 per pair in variable raw material costs and $16.95 per pair in variable labor expense. The shoes sell for $126 per pair. Last year, production was 110,000 pairs. Fixed costs were $1,045,000.

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 7,000 pairs, what is the minimum acceptable total revenue from the order?

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  1. 1 June, 17:44
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    (a) Total cost of production = $5,736,500

    (b) Marginal costs = $42.65

    (c) Average cost = $52.15

    (d) Revenue = $298,550

    Explanation:

    First of all we have to write down the parameters given in the question

    K-Too Everwear corporation can manufacture mountain climbing shoes at the rate of $25.70 for one pair in variable raw materials costs

    This same shoes can be manufactured at the rate of $16.95 for one pair in variable labor expenses

    The shoe is sold for $126 for a pair

    The quantity of shoes produced last year was 110,000 pairs

    Fixed cost are $1,045,000

    (a) The total cost of production can be calculated as follows

    ($25.70+$16.95) (110,000) + $1,045,000

    = ($42.65) (110,000) + $1,045,000

    = $4,691,500 + $1,045,000

    = $5,736,500

    Total cost of production = $5,736,500

    (b) The Marginal costs can be calculated as follows

    = $25.70 + $16.95

    = $42.65

    Marginal costs = $42.65

    (c) The average cost per pair can be calculated as follows

    Total cost of production/Total quantity

    = $5,736,500/110,000

    = $52.15

    Average cost = $52.15

    (d) The minimum total revenue can be calculated as follows

    = 7,000 * $42.65

    = $298,550

    Total revenue = $298,550
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