Question

Pilar Drycleaners has capacity to clean up to 9,000 garments per month Requirements 1. Complete the schedule below for the tree volumes shown 2. Why does the average cost per garment change? 3. Suppose the owner, Derrick Pillar, erroneously uses the average cost per unit ad full capacity to predict total costs at a volume of 6.000 garments. Would he overestimate or underestimate his total cost? By how much? Requirement 1. Complete the following schedule for the three volumes shown (Round all unit cost to the nearest cent and all total costs to the nearest whole dollar) 6,000 Garments 7,500 Garments 9.000 Garments Total variable costs Tots fed costs Tot operating costs Variable cost per garment Fixed cost per garment Average cost per garment

Answer 1

1.

	6,000 garments	7,500 garments	9,000 garments
Total variable costs	$4,500	$5,625	$6,750
Total fixed costs	$13,500	$13,500	$13,500
Total operating costs	$18,000	$19,125	$20,250
Variable cost per unit garment	$0.75	$0.75	$0.75
Fixed cost per garment	$2.25	$1.80	$1.50
Average cost per garment	$3	$2.55	$2.25

2.

The average cost per garment changes because of fixed costs.

3.

Actual cost for 6,000 garment = $18,000

Cost of 6,000 garment at full capacity rate = 6,000 X $2.25 = $13,500

Difference = $18,000 - $13,500 = $4,500

The cost is underestimated by $4,500