Question

K-Too Everwear Corporation can manufacture mountain climbing shoes for $33.18 per pair in variable raw material costs and $24.36 per pair in variable labor expense. The shoes sell for $170 per pair. Last year, production was 145,000 pairs. Fixed costs were $1,750,000.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 5,000 pairs?What is the minimum acceptable total reveune from the order.

Answer 1

Answer:

(a) $10,093,300

(b) $57.54

(c) $69.61

(d) $287,700

Explanation:

Given that,

Variable raw material = $33.18 per pair

Variable labor expense = $24.36 per pair

Fixed cost = $1,750,000

Last year, production = 145,000 pairs

(a) Variable cost per unit:

= Variable raw material + Variable labor expense

= $33.18 + $24.36

= $57.54

Total production costs:

= Variable cost per unit × Number of units) + Fixed cost

= ($57.54 × 145,000 pairs) + $1,750,000

= $8,343,300 + $1,750,000

= $10,093,300

(b) Marginal cost per pair:

= The variable cost per pair

= $57.54

(c) Average cost per pair:

= Total Production Cost ÷ Number of units produced

= $10,093,300 ÷ 145,000

= $69.61

(d) Production Cost of additional 5,000 pairs:

= (Variable Cost per pair × Number of additional pairs produced )

= ($57.54 × 5,000)

= $287,700

Minimum acceptable total revenue is $287,700.