Question

Question 1, E6-20A (similar to) Question Price Drycleaners has capacity to earn up to 9.000 garments per month Requirements 1. Complete the school below for the volumes shown 2. Why does the average cost per game change? 3. Suppose the owner DuPon y s the average cost per una fotos is coss? By how much? Requirement 1. Complete the following schedule for the three wolumes shown (Round all costs to the hoston Total variable costs Totaled costs

Answer 1

1.

	6,000 Garments	7,500 Garments	9,000 Garments
Total variable costs	6,000 x 0.95 = 5,700	7,125	9,000 x 0.95 = 8,550
Total fixed costs	13,500	7,500 x 1.80 = 13,500	13,500
Total operating costs	19,200	20,625	22,050
Variable cost per garment	0.95	7,125/7,500 = 0.95	0.95
Fixed cost per garment	13,500/6,000 = 2.25	1.8	13,500/9,000 = 1.5
Average cost per garment	3.2	2.75	2.45

2.

Average cost per garments  decreases with increase in output and it increases with decrease in output. It happens because total fixed cost do not change due to change in output within relevant range and thus per unit fixed cost change with change in output.

3.

Cost predicted by owner = 6,000 x 2.45

= $14,700

Actual cost = 6,000 x 3.2

= $19,200

Cost under estimated by owner = 19,200-14,700

= $4,500

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