K-Too Everwear Corporation can manufacture mountain climbing shoes for $14.8 per
ID: 2767847 • Letter: K
Question
K-Too Everwear Corporation can manufacture mountain climbing shoes for $14.8 per pair in variable raw material costs and $18.7 per pair in variable labor expense. The shoes sell for $127 per pair. Last year, production was 140,000 pairs. Fixed costs were $800,000.
If the company is considering a one-time order for an extra 10,000 pairs, what is the minimum acceptable total revenue from the order? (Do not round your intermediate calculations.)
(a) What were total production costs? (Do not round your intermediate calculations.)Explanation / Answer
Answer:(a) TheTtotal Production costs include all variable costs and fixed costs. We need to make sure we are including all variable costs for the number of units produced, so:
Total costs = ($14.8 + 18.7)(140,000) + $800,000
Total costs = $5490000
Answer:(b) The marginal cost, or cost of producing one more unit, is the total variable cost per unit, so
MC=$14.8 + 18.7=$33.5 per pair
Answer:(c) The average cost per unit is the total cost of production, divided by the quantity produced, so:
Average cost = Total cost / Total quantity
=$5490000/140000=$39.21 per pair
Answer:(d) Minimum acceptable total revenue = 10,000($33.5)=$335000
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