K-Too Everwear Corporation can manufacture mountain climbing shoes for $25.70 per pair in variable raw material costs and $16.95 per pair in variable labor expense. The shoes sell for $126 per pair. Last year, production was 110,000 pairs. Fixed costs were $1,045,000.

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 7,000 pairs, what is the minimum acceptable total revenue from the order?

(a) Total cost of production = $5,736,500

(b) Marginal costs = $42.65

(c) Average cost = $52.15

(d) Revenue = $298,550

Explanation:

First of all we have to write down the parameters given in the question

K-Too Everwear corporation can manufacture mountain climbing shoes at the rate of $25.70 for one pair in variable raw materials costs

This same shoes can be manufactured at the rate of $16.95 for one pair in variable labor expenses

The shoe is sold for $126 for a pair

The quantity of shoes produced last year was 110,000 pairs

Fixed cost are $1,045,000

(a) The total cost of production can be calculated as follows

($25.70+$16.95) (110,000) + $1,045,000

= ($42.65) (110,000) + $1,045,000

= $4,691,500 + $1,045,000

= $5,736,500

Total cost of production = $5,736,500

(b) The Marginal costs can be calculated as follows

= $25.70 + $16.95

= $42.65

Marginal costs = $42.65

(c) The average cost per pair can be calculated as follows

Total cost of production/Total quantity

= $5,736,500/110,000

= $52.15

Average cost = $52.15

(d) The minimum total revenue can be calculated as follows

= 7,000 * $42.65

= $298,550

Total revenue = $298,550