Question

Question Price Drycleaners has capacity to clean up to 7.500 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 Price erroneously uses the average cost per una focacy to predict tal cosat a volume of 4500g Requirement 1. Complete the following schedule for the the volumes shown (Hound Would he ev e r under his costs by how much to the newest cant and cost to the whole dar) 5,000 7.500 Garments Garments Garments Total variable costs Total bed costs Total operating costs Variable cost pergament Fbed cost per garment Average cost per garment

Answer 1

Variable cost if fixed per unit and total variable cost changes with the changes in level of operation while fixed cost remains same in total and does not change with the change in the level of output

1.Schedule will be as follows:

	4,500	6,000	7,500
Total Variable costs	3,375	4,500	5,625
Total Fixed costs	14,400	14,400	14,400
Total Operating costs	17,775	18,900	20,025
Variable cost per garment	0.75	0.75	0.75
Fixed cost per garment	3.2	2.40	1.92
Average cost per garment	3.95	3.15	2.67

                                   

2.Since fixed cost remains constant, fixed cost per garment reduces with increase in production and hence, average cost changes

3.Actual Total cost = $17,775

Cost taken = 2.67*4,500 = $12,015

Underestimation = $5,760

He would underestimate costs by $5,760