Question

all thre requirements

Question Question 1, E6-20A (similar to) Price Drycleaners has capacity to clean up to 9,000 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, Dustin Price, erroneously uses the average overestimate or underestimate his total costs? By how much? Requirement 1. Complete the following schedule for the three 6,000 8 3 Garments Garm Total variable costs Total fixed costs Total operating costs Vanable cost per garment Faxed cost per garment Average cost per garment

Answer 1

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1		Garments
		6000	7500	9000
	Total Variable cost	$       5,700	$             7,125	$             8,550
	Total Fixed cost per year	$     13,500	$           13,500	$           13,500
	Total operating costs	$     19,200	$           20,625	$           22,050
	Variable cost per garment	$         0.95	$               0.95	$               0.95
	Fixed cost per garment	$         2.25	$               1.80	$               1.50
	Average cost per garment	$         3.20	$               2.75	$               2.45
	Note: Fixed cost per year will remain same irrespective of number units whereas it will change in case of Fixed cost per unit also Variable cost per unit will remain same and it will change in total.
2	The average cost per garment changes as volume changes due to fixed component of the dry cleaner's cost. The fixed cost per unit decrease as volume increases, while the variable costs per unit remains constant.
3	He would underestimate his cost by $4500
	[(6000 garments X ($3.20 - $2.45)] = $4500

1 Garments 6000 7500 9000 2 3 4 5 Total Variable cost Total Fixed cost per year Total operating costs =C2*C8 =D5 =SUM(C4:C5) 7125 =D9*D2 =SUM(D4:05) =E2*E8 =D5 =SUM(E4:E5) 8 9 Variable cost per garment Fixed cost per garment Average cost per garment =D8 =C5/C2 -SUM(C8:09) =D4/D2 1.8 =SUM(D8:09) =D8 =E5/E2 =SUM(E8:E9) 10