Question

K-Too Everwear Corporation can manufacture mountain climbing shoes for $14.05 per pair in variable raw material costs and $13.2 per pair in variable labor expense. The shoes sell for $82 per pair. Last year, production was 190,000 pairs. Fixed costs were $860,000.

  

Required:

(a)	What were total production costs? (Do not round your intermediate calculations.)

   

(b)	What is the marginal cost per pair? (Do not round your intermediate calculations.)

  

(c)	What is the average cost? (Do not round your intermediate calculations.)

  

(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? (Do not round your intermediate calculations.)

Answer 1

a)

Total production costs = fixed costs + variable costs

Total production costs = $860,000. + ( $ 14.05 + $ 13.2 ) x 190,000

Total production costs = $ 6,037,500

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b) The cost for one pair = ($ 14.05 + $ 13.2 ) x 1

The cost for one pair = $ 27.25

cost for two pairs = ($ 14.05 + $ 13.2 ) x 2

cost for two pairs = $ 54.50

Marginal cost =  $ 54.50 - $ 27.25

Marginal cost = $ 27.25

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c)

Average cost = $ 6,037,500 190,000 pairs

Average cost = $ 31.78

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d) Total cost of 197,000 units = ( $ 27.25 ) x 197,000 +  $860,000

Total cost of 197,000 units = $ 6,228,250

The minimum acceptable total revenue from the order should be greater than total cost i.e.  $ 6,228,251