Question

Pillard Drycleaners has capacity to clean up to 8 comma 000 garments per month. Requirements 1. Complete the schedule below for the three volumes shown. 2. Why does the average cost per garment​ change? 3. Suppose the​ owner, Doug Pillard​, erroneously uses the average cost per unit at full capacity to predict total costs at a volume of 5 comma 000 garments. Would he overestimate or underestimate his total​ costs? By how​ much? Requirement 1. Complete the following schedule for the three volumes shown. ​(Round all unit costs to the nearest cent and all total costs to the nearest whole​ dollar.) 5,000 6,500 8,000 Garments Garments Garments Total variable costs $4,875 Total fixed costs Total operating costs Variable cost per garment Fixed cost per garment $2.40 Average cost per garment

Answer 1

1.

	5,000 garments	6,500 garments	8,000 garments
Total variable costs	$3,750	$4,875	$6,000
Total fixed costs	$15,600	$15,600	$15,600
Total operating costs	$19,350	$20,475	$21,600
Variable cost per unit garment	$0.75	$0.75	$0.75
Fixed cost per garment	$3.12	$2.40	$1.95
Average cost per garment	$3.87	$3.15	$2.70

2.

The average cost per garment changes because of fixed costs.

3.

Actual cost for 5,000 garment = $19,350

Cost of 5,000 garment at full capacity rate = 5,000 X $2.70 = $13,500

Difference = $19,350 - $13,500 = $5,850

The cost is underestimated by $5,850