Question

Pillard Dry Cleaners has capacity to clean up to 6,000 garments per month. Requirements 1. Complete the following schedule for the three volumes shown. 2. Why does the average cost per garment change? 3. Suppose the owner, Dan Pillard, erroneously uses the average cost per unit at full capacity to predict total costs at a volume of 3,000 garments. Would he overestimate or underestimate his total costs? By how much? Requirement 1. Complete the schedule below for the three volumes shown. (Round all unit costs to the nearest cent and all total costs to the nearest whole dollar.) 4,500 un 3,000 Garments 6,000 Garments Garments $ 2,700 dy Total variable costs Total fixed costs Total operating costs Variable cost per garment Fixed cost per garment $ 1.80 Average cost per garment

Answer 1

Requirement 1 & 2:

	3000	4500	6000
	Garments	Garments	Garments
Total Variable Costs	1800	2700	3600
Total Fixed Costs	8100	8100	8100
Total Operating Costs	9900	10800	11700
Variable cost per garment	0.6	0.6	0.6
Fixed cost per garment	2.7	1.8	1.35
Average cost per garment	3.3	2.4	1.95

Requirement 3:

Total Costs should be as per average cost for 3000 units	9900
Total Costs errorneously taken for 6000 Units	11700
Overstated Total Costs	1800