Question

In: Finance

K-Too Everwear Corporation can manufacture mountain climbing shoes for $32.00 per pair in variable raw material...

K-Too Everwear Corporation can manufacture mountain climbing shoes for $32.00 per pair in variable raw material costs and $22.95 per pair in variable labor expense. The shoes sell for $136 per pair. Last year, production was 160,000 pairs. Fixed costs were $1,120,000.

What were total production costs? (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.)

Total production cost

$

What is the marginal cost per pair? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Marginal cost per pair

$

What is the average cost per pair? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Average cost per pair

$

If the company is considering a one-time order for an extra 8,000 pairs, what is the minimum acceptable total revenue from the order? (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.)

Total revenue

$

Expert Solution

Solution:-

a) Calculation of total production cost

The total production cost can be calculated as follows:-

Total production cost= Total variable cost + Total fixed cost

=(Material cost PU+ Labor Cost PU)*units produced + Total fixed ost

=(32.00+22.95)*160,000+1,120,000

=8,792,000+1,120,000

=$9,912,000

Hence the total production cost = $9,912,000.

b) Marginal cost per pair:-

Marginal cost = Raw material cost per unit + Labor cost per unit

=32.00+22.95

=$54.95

c) Average cost per pair

= Total production cost/ No. of units produced

=$9,912,000/160,000

=$61.95

d) Minimum acceptable total revenue from one time order:-

The minimum acceptable total revenue is the marginal cost.

Hence,

Minimum acceptable revenue= Marginal cost *No of additional units

=$54.95*8000

=$439,600

Please feel free to ask if you have any query in the comment section.

jeff jeffy answered 2 years ago

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