Homework Answers
a. Total production costs = total variable costs + total fixed costs
Total variable costs = (variable raw material costs + variable labor expense) × number of pairs
= (18.90 + 19.07) × 130,000
= 37.97 ×130,000
=4,936,100
Total fixed costs = 780,000
Total production costs = $(4,936,100 + 780,000) = $5,716,100
b. Marginal cost per pair = variable costs per pair i.e. variable raw material cost + variable labor expenses
=$(18.90 + 19.07) =$ 37.97 per pair
c. Average cost per pair = total production costs / number of pairs
= 5,716,100 / 130,000 = $ 43.97 per pair
d. Minimum acceptable revenue = number of pairs * marginal cost per pair =
= 10,000 * 37.97 = $ 379,700
Additional pairs should be produced only if the cost of producing those pairs can be recovered. It means minimum revenue should be variable cost i.e. $ 37.97 per pair.
Summary:
a. Total production costs =$ 5,716,100
b. Marginal costs per pair = $ 37.97 per pair
c. Average cost = $ 43.97 per pair
d. Minimum acceptable revenue =$ 379,700
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