Everwear Corporation can manufacture mountain climbing shoes for $14.15 per pair

Question

Everwear Corporation can manufacture mountain climbing shoes for $14.15 per pair in variable raw material costs and $18.37 per pair in variable labor expense. The shoes sell for $107 per pair. Last year, production was 160,000 pairs. Fixed costs were $880,000. SHOW WORK

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 6,000 pairs, what is the minimum acceptable total revenue from the order? (Do not round your intermediate calculations.) HINT: Does the company need to recover marginal or average cost per unit?

Explanation / Answer

Answers:

(A) = Total Production Cost = 160,000 (14.15 + 18.37$ ) + 880,000 = 60,83,200 $

(B) = Marginal cost is basically increase in variable cost with increase in an production of 1 extra pair of shoes, So = Marginal Cost = (6083200 -880,000 ) / 160000 = 32.52 (14.15 + 18.37 )

(C) = Average Cost per PAir = 6083200 / 160,000 = $ 38.02

(D)Minimum Accpetable Revenue should be (its Variable Cost)= 32.52 * 6000 = $195,120

Thanks

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